Logout Campaign: Why Indian Restaurants are moving away from Zomato, Swiggy & UberEats.
Updated: Apr 13, 2020
India is seeing explosive growth in the food industry with a new restaurant coming up every now and then. Customers now have their choice of food right at their doorstep. Online ordering and home delivery, cashback, reward points and heavy discounts have gamified the relationship between a customer and a restaurant. Customers are also accepting the offers that restaurants put on their plate and rewarding them with extra profits.
Recently in a report released by the National Restaurant Association of India (NRAI) some big numbers were seen representing the rapid growth in the industry. The report stated that the current restaurant market in India is worth over 3.09 Lakh Crores in 2016 and will contribute almost Rs 22,400 Crore by way of taxes in the current year. The report also stated that the food market of the country directly employs more than 5.8 million as of 2016.
As per the reports, the food services will be valued at almost 5 Lakh Crores in 2021, witnessing a Compound Annual Growth Rate (CAGR) of 10%. Also, by 2021 the restaurant sector will contribute almost 2.1 percent to the nation’s GDP.
This rapid growth however, has not come without its sacrifices.
Over the last few weeks ,many Indian restaurants have stood up and raised their voice against food search and delivery apps such as Uber eats, Swiggy and Zomato via the #logout online campaign.
Restaurants have an issue with the Gold service offered by Zomato and the steep commissions charged for each order (around 28%). In this article we try to understand the challenges faced by the restaurants, what caused them, and how they can be resolved.
Challenges faced by Restaurants:
New restaurants and food joints are often small- in terms of size and resources, recognition and hence can be difficult to find for potential customers. Many of these restaurant owners are highly motivated, ambitious entrepreneurs who want to realise their potential and grow their business by opening new outlets and having more customers. This growth requires more people to know about their restaurant which can be achieved through advertisements and marketing. While some restaurant owners can afford to promote their food joint and successfully gain more customers, a vast majority of them struggle to get new customers, and hence turn to food search and delivery apps such as Zomato, Swiggy, UberEats ,GrubHub, Faasos and so on.
These apps have made it easier for people to discover new restaurants, order takeout meals, and restaurants have gotten exposure to a larger audience of diners, although they face some difficulties:
->These food ordering platforms also charge hefty commissions on each order and can squeeze the profit margins of culinary establishments.
->Neither Zomato nor Swiggy shares customers’ names and phone numbers with the restaurant that fills the order. Restaurant owners said that left them with no way to market directly or build long-term relationships with their best customers.
->Zomato and Swiggy also keep cooking up promotions and programs (such as the Zomato Gold) to provide value to app users — often at the expense of the restaurants.
Cause for these issues:
Zomato's Chief Execute Officer Deepinder Goyal made some public statements regarding the #logout campaign and addressed the cause for some of the issues faced, such as:
->Operational costs of Zomato to process and deliver the items for which they charge commissions.
->Customers who have abused the promotional offers and discounts to hunt for bargains.
-> Swiggy and Zomato do not share customer details to the restaurant due to privacy concerns of the user.
How these issues can be resolved:
Last week, Deepinder sent an email to all of the Gold restaurants announcing 10 changes in response to their concerns, including a once-a-day limit and a doubling of the annual subscription price to about $25.
Zomato recently enrolled about 250 restaurants in an experiment called Infinity, in which people could eat as much as they wanted from a restaurant’s entire menu for a flat price. This experiment resulted to a lot of food wastage by customers which had to be managed by the restaurant. To fix this issue,
Mr. Goyal said Zomato now planned to limit the unlimited dining to selected items like pancakes or dosas.
Swiggy, which is focused entirely on delivery, is beginning to compete directly with restaurant partners through its own brands. Swiggy also said it would limit the frequency of discounts and look at ways to share the costs.
The problems faced by new restaurants undoubtedly deserve to be noticed and food search/delivery apps should work with them to resolve their issues.
Moreover, the bargain hunters (a small portion of the customers) who are the real source of concern should be restricted so that they do not abuse the system and so they can recover from their discount addiction and restore balance between customers and the restaurant.
Restaurants are only going to keep increasing in number and size, so it is essential for the customer and restaurant to maintain a good relationship with each other.