Delhi-based Thomas Fenn has been running speciality restaurant Mahabelly and two cloud kitchens for the past five years. A fairly small operator among lakhs of restaurants, Fenn is leading from the front in the fight against online food aggregators such as Zomato and Swiggy. Fenn is clear - aggregators have manipulated the market for long, and it is time restaurants take back control.
Last month, the National Restaurant Association of India (NRAI), the country's largest restaurant body, tied up with O2O (online-to-offline) commerce platform Dotpe to "empower small and large food and beverages (F&B) entrepreneurs with digital technology". Dotpe will provide digital solutions (integrated with a payments system) to restaurants.
Take an example. A group of friends go to a restaurant, and instead of picking up a physical menu, they scan a QR code. It opens a mobile interface containing the digital menu. The items are selected, after which, the interface gets directed to a third-party payments gateway, and the order is placed. A notification of the order goes to the restaurant's point of sale (PoS) machine. At the table, the friends are directed to a WhatsApp window, where they can do transactional communication (order updates, invoice copy, feedback, etc.) with the restaurant.
Consumers these days are wary of touchpoints inside restaurants (menu cards being most risky), a behavioural pattern that is giving rise to "contactless dining". Chains, including Haldiram's, Social, Smoke House Deli, Cafe Delhi Heights and Fab Cafe, are already using this service.
Anurag Katriar, President, NRAI, says the idea to create an alternate channel was in the works for over four months. The virus outbreak only accelerated the launch. "Contactless dining is the future. The way the digital game has progressed is not in favour of small restaurants. With this step, we will free them from the clutches of digital landlords," he adds.
So, while contactless dining service is also being offered by Zomato for its partner restaurants, the real action is going to take place in the delivery and online ordering space - the new battlefront for restaurants and online aggregators. At the moment, the industry body is close to signing up deals with logistics partners who will support delivery functions. An NRAI member says the association will advise its members to engage with these service providers (logistics and tech) to bring down their dependence on aggregators. "We will rope in two-three partners in each area (tech, logistics) so that members can choose who is best for them. We want to assure our members that we have gone the extra mile to secure the best deals for them. Obviously, we will not impose upon members to mandatorily opt for these services. But service providers can offer cheap rates only if we give them scale," says an NRAI official.
The Story of a Tussle
It all started last August, when restaurants launched the "logout" campaign under which prominent brands opted out of table booking services of aggregators, including Zomato and Dineout. Zomato Gold offered flat discounts (like 1+1 on food and drinks) throughout the year. This irked restaurants as they were discounting from their own pockets.
As losses mounted, restaurants sent a five-point charter to Zomato that included consulting with restaurants before launching such aggressive schemes. Later, Zomato changed its model to a variable discount-led structure. But that didn't improve things. Problems on the delivery side continued, and restaurants finally found a way to deal with it.
Mahabelly's Fenn says even though the NRAI has five lakh members, large restaurants would be the early adopters of tech. "We believe that if large players endorse these services, there will be a trickle-down effect. It took Zomato and Swiggy seven years to reach where they are today. Our curve will be quicker, but it will still take time," he adds.
India currently has over two million restaurants (organised and unorganised) generating revenues worth Rs 4.24 lakh crore annually.
Restaurant owners say the reason to launch an alternate digital platform is four-fold: non-transparency, exorbitant commissions, lack of restaurants' control, and anti-partner activities.
Initially, the relationship between restaurants and food aggregators was mutually beneficial. It helped restaurants grow their markets. For example, if they were doing self-deliveries over a 2-km radius, aggregators expanded it to 5 km. Commissions were also comparatively lower at 15 per cent. Over a period of time, commissions went up to about 25 per cent, while orders went down. For the restaurant industry, which operates on wafer-thin margins (about 5 per cent EBITDA at the chain level), the partnership made little sense.
But the real friction happened when aggregators started their own cloud kitchens. Swiggy has four private labels - The Bowl Company, Homely, Goodness Kitchen and Breakfast Express - which compete with restaurant partners on its platform. For restaurants, these are anti-partner activities because these private kitchens are fed with a lot of data that aggregators have gathered over a period of time from restaurants' order histories and customers' behaviour. Aided by algorithm and data science, this gives aggregators access to the demand and pricing situation across regions and localities.
"Swiggy and Zomato never share customer data with restaurants - not even names and phone numbers. Aggregators could open lots of kitchens without anyone knowing about them," says Ankit Mehrotra, Founder and CEO, Dineout. The ownership of customer data is crucial because it helps restaurants strengthen loyalty programmes, and do targeted marketing.
NRAI's Katriar says the association came close to signing a pact with Swiggy for sharing data, but it didn't go through. In an email response, a Swiggy spokesperson said it always had open dialogues with restaurant partners and NRAI, and have worked together in mitigating their concerns.
Gaurav Gupta, Founder and COO, Zomato, said his restaurant partners are fully aligned to collaborate for the longterm growth of the sector. "We have been working very closely with them to introduce different offerings. For instance, food delivery has fuelled the sector's growth by leaps and bounds and helped restaurants reach more consumers and bring in more employment," he said in an email reply.
Discounting is another problem area. A restaurateur told BT that aggregators currently force restaurants to offer discounts even if they don't want to. If, for instance, during an IPL season, Zomato approaches the top five restaurants in a locality with discounting deals, the other five restaurants in the area have no choice but to join the bandwagon. "Some restaurants do it from their pockets, which hurt their profit and loss statements. Aggregators, on the other hand, are well funded by venture capitalists which allow them to burn cash," he adds.
Agrees NRAI's Katriar. "In most cases, there's no profit in the business that comes from aggregators. Restaurant brands want to be on these platforms because of the fear of missing out," he says. Also, large chains with bigger order sizes end up subsidising smaller restaurants and even private kitchens of aggregators. For instance, a large restaurant paying 20 per cent commission on a Rs 1,000 order is not same as a 20 per cent commission paid by a smaller restaurant on a Rs 100 order value.
"Aggregators are violating e-commerce norms since they are not allowed to operate their own kitchens as marketplace companies. They bundle services, and restaurants have to compulsorily take all of them, including delivery services, to be on their platform, which is against rules," says a leading restaurant operator. "Their commissions are opaque. We don't know how much we are paying them for."
Globally, new-age businesses such as ride-hailing services (Uber, Ola), food aggregators, and hospitality chains (like OYO) are facing severe issues with their partners. The fight between restaurant owners and aggregators is also playing out globally in countries such as the US, Singapore and the UAE. "Whether it's Talabat and Zomato in the UAE or Uber Eats in Singapore, problems are everywhere," says Anurag Gupta, Co-founder, Dotpe.
It's not that the restaurants don't already have a digital presence. The large 9,000-odd chain restaurants have invested substantially in digital tools (websites, PoS machines) in some form or the other. Large restaurant chains such as Jubilant FoodWorks (which operates Domino's in India), Sagar Ratna and KFC India also do digital campaigns. But now, for the first time, restaurants, especially smaller ones, have a list of "trusted" tech partners whom they can tie up. And since it's about economies of scale, if more restaurants avail services, it will drive down the costs of these services for everyone.
However, a large part still operates offline. Dotpe's Gupta says nearly 97 per cent of small and medium enterprises (SMEs), including F&B outlets, are still offline. "For them, digital is largely about being present on YouTube, TikTok and WhatsApp. We are targeting to sign up half-a-million brick-and-mortar outlets by the end of 2020," he adds.
Restaurants say it is their marketing efforts (offline and online) that are currently fuelling the growth of Zomato and Swiggy. For instance, when restaurants advertise on online channels such as Google, Instagram and Facebook, they usually direct their customers to aggregators for online deliveries. With tech and logistics partnerships, restaurants can now integrate their online advertising with the Dotpe-enabled interface and deliver directly. This will save costs, and lead to higher profitability and better marketing.
In Delhi, for example, the total cost of delivering food works out between Rs 35 and Rs 60 within a three-km radius. The commission charged by Zomato and Swiggy on one such order is around 18-25 per cent. Now, if restaurants go digital using the tools suggested by NRAI, their overall cost, including delivery, will add up to 6-7 per cent. So, on a Rs 1,000 order, a restaurant can save any where between Rs 110 and Rs 180. They can use this to give direct discounts to customers, and drive profitability.
"By going digital, restaurants will have a lot of flexibility. They will have a bigger room to give discounts, given the difference between aggregators' commissions and the cost of doing it on their own. And when they are giving discounts on their own, they can stop discounts through aggregators since Zomato/Swiggy are required to take permission from restaurants to give discounts," says Mahabelly's Fenn.
So, a restaurant can either give a flat discount (which could likely be higher than aggregators because of the 11- 18 per cent savings on commissions) or absorb the delivery cost if the order value is high. "The restaurant can have a wide variety of promotions and discounts compared to the rigid commission structure of aggregators," adds Fenn.
And with coronavirus biting into bottom lines, saving costs and protecting margins are becoming crucial. Already restaurants are facing the triple blow of lesser footfalls due to safety concerns among consumers, government-imposed restrictions within outlets (50 per cent capacity is allowed, social distancing, bars cannot open, etc.), and a depressing demand scenario.
According to Dineout, the F&B sector contributes around 3 per cent to the country's GDP and employs around 7.3 million people. Due to the virus outbreak, nearly 30 per cent of those employed are at risk of losing jobs, and the monetary loss could be as high as Rs 1 lakh crore.
It's not that aggregators are any well off. Last month, Zomato laid off 13 per cent of its employees and announced 50 per cent salary cuts for the remaining staff. Swiggy, too, retrenched 1,100 employees out of its 8,000 full-time workforce, as the outbreak-induced lockdown resulted in lower orders.
A shift towards digital ordering also means costeffective marketing campaigns and more loyalty programmes. At the moment, the cost of acquiring a new customer and existing customer is literally the same for small restaurants, because they can't differentiate between the two digitally. With tools offered by tech partners like Dotpe, restaurants can store customer data, and target them better.
The NRAI's plan is also expected to boost restaurants' revenues in smaller towns as well. Even though Zomato claims to be present in over 300 cities, its focus is largely the big metros where the bulk of its business is concentrated. That's why Uber Eats India (acquired by Zomato in January) went to smaller cities and towns such as Chandigarh, Agra, Pune and some parts of Kerala to create a niche market for itself. "There's a pent-up food ordering demand in smaller towns that needs to be tapped. Restaurants don't have the wherewithal to do this on their own, and hence they need handholding from the industry body," says another NRAI official.
According to NRAI's Katriar, these plans don't mean that aggregators will be completely shunned. At present, 80 per cent of the delivery traffic at a typical restaurant is handled by aggregators. Beside this dependency, restaurants don't really know if their digitalisation efforts would work. To top all these, there's a new aggregator in the market - Amazon - which started food delivery services in Bengaluru recently.
"Without having an end-to-end offering like delivery, payments and back-end support, this plan would just fall flat," says Siddharth Thaker, Managing Partner, Prognosis Global Consulting - a consulting firm.
One of the biggest reasons for the popularity and success of aggregators is the ease of doing transactions - everything can be done on a single platform, including seeking after-sales support, which is crucial for repeat orders. If restaurants were to do digital ordering and delivery through third-parties, the integration of the entire purchase journey of a consumer on a single platform is essential. Consumers would not simply want to engage with two-three different entities if they have issues with their orders. "The delivery partner will be integrated with the mobile ordering interface," says the NRAI official quoted above.
The NRAI says all of this is being worked out at the back-end since logistics partners are still getting finalised. Take the case of complaints. Who would take care of quality- and payments-related issues once an order is placed, and delivered? So, while restaurants would be the single point of contact for all customer grievances, there's a system under development to further smoothen the process.
Generally, 90 per cent of consumer complaints are similar. There can be divided into two categories: realtime and legacy. While real-time complaints would be handled by restaurants themselves, legacy complaints (payment or quality-related) could be handled by bots - an option that is still being explored. Zomato and Swiggy also ask customers to write emails to claim settlements.
Also, even after building a digital presence, restaurants would continue to face challenges on the discoverability part, which is where Zomato and Swiggy are likely to score, according to experts. Aggregators work on converging traffic in one place. For customers, they serve as platforms for discovering new restaurants. But the counter-argument to the "discoverability" problem is that most consumers have a limited pool of restaurants from which they order, and once those restaurants have tapped them with their deeper discounts, they will keep flocking to them. "Which is where the role of WhatsApp becomes crucial because once a customer has ordered with our partner restaurant, they can do repeat orders from WhatsApp itself," says Dotpe's Gupta.
Even as the restaurant industry prepares to wage a war against aggregators, one thing needs to be kept in mind - for customers, it doesn't matter who's serving them, as long as the ordering experience is seamless, and prices are reasonable. So, for large restaurateurs who have already made the plunge, the litmus test has begun. How things shape up from here will determine the future of the industry, to a large extent.