The Indian restaurants are at war with food delivery apps. Yes, Swiggy and Zomato are fighting with restaurants. Take a look at this. After August 15th more than 2,000 restaurants across India have pulled out of the table reservation programme and the membership of Zomato, Dineout and EazyDiner.
Who is leading the boycott? The National Restaurant Association of India (NRAI), which is an industry body of over 5 Lakh restaurants, is leading the boycott under #logout.
The restaurant aggregator apps like Swiggy and Zomato are offering discounts making everyone a deal hunter. If a restaurant doesn’t offer a deal, customers simply go to the next one.
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All was well between Swiggy, Zomato and the many restaurants and customers for several years. Then in August, things went sour. Some restaurants in Gurgaon refused to honor discounts set by the restaurant aggregator. This small symbolic protest became a major issue as restaurants across the country logged out of Swiggy and Zomato apps.
Restaurants have claimed that tech-enabled startups like Zomato and Swiggy have made deep discounting the norm. The aggregator initiatives like Zomato Gold entice customers with deep discounts, but restaurants have to bear the burden. (Under deep discounts Companies sell low priced items in large quantities).
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Now, many restaurants used to work on conventional lines. (This is strong cash flows). Deep discounts were a race to the bottom. Worse, there was no customer loyalty and many restaurants were not getting the desired margin.
This is what the CEO of Massive Restaurants, Zorawar Kalra, (Backed by Gaja Capital) had to say on this issue. A 50% discount on food or alcohol cut off restaurant margins from 10-18% to a third. How can a restaurant run at 3% margins?
You have restaurant aggregators like EazyDiner, Dineout, NearBuy, MagicPin and Gourmet Passport offering a range of discounts and freebies. Restaurants had a problem with Zomato Gold with the one-plus-one offer for dine-in-dishes and two-plus-two for drinks.
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Zomato says more than 1 Million paid subscribers of the Gold Programme could easily unlock offers whenever they want, without any limits.
Zomato claims that greedy restaurants signed up because they wanted more customers. (They didn’t have a problem then). Restaurants claim it was FOMO, or the Fear Of Missing Out. There was pressure on the better performing restaurants to take up Zomato Gold or miss out to the rivals. Even though restaurants were struggling with rising costs, there was no choice but to bear the burden of deals and promotions during busy hours.
The aim of restaurants signing up with Zomato and Swiggy was to get more customers. However, this never really happened as restaurants fought with costly rentals, as no sales came in.
Zomato and Swiggy ran these restaurants into the ground. If restaurants weren’t offering a scheme, they wore a deserted look over the weekends.
The bigger problem was the customers were used to discounts and this happened at the cost of restaurants. Higher rent and additional payments made to app operators ate up restaurants money. The ultimate loser could be the customer as dining companies shut shop.
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There’s another problem. The slowdown in the economy has resulted in a cut in discretionary spending and less people are eating out. Restaurants are struggling with high labor costs and app-driven freebies are compounding the problem. An owner of 50 restaurants has said that restaurants are damaged beyond repair and would take several years to recover.
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