Nearly five weeks into the #Logout campaign that turned the country’s booming food-tech industry on its head, Zomato and Swiggy are set to roll out a peace offering they believe restaurants will not be able to turn down. The food-tech unicorns and some of their peers are slated to be back at the negotiation table with representatives of the NRAI (National Restaurant Association of India), the chief architect of the campaign, in Delhi later today.
What’s on the table?
According to people privy to developments, some of the salient terms of the proposed new agreement between the food-tech platforms and restaurants include:
- Unbundling delivery services from listing on a food-tech platform. A restaurant can choose to use its own staff to deliver food or hire a third party delivery service provider instead of being tied to Swiggy or Zomato’s delivery staff.
- Capping discounts to a maximum of 60 days a year and a maximum of 25% on the overall bill.
- Limiting commissions for order-only at less than 15%. For orders that include delivery by the food-tech platform, the commission could go up to 25%.
- Food-tech platforms will share data on consumers with restaurants with respect to repeat orders, favourite orders, customer details, etc.
In response to detailed queries from TechCircle, a Swiggy spokesperson said, “We had a constructive and collaborative dialogue with NRAI last time and will reconvene on all the points that were discussed. As of today, no specific number has been agreed upon and it would be inappropriate to comment on the topics before the meeting. Having said that, Swiggy’s goal remains to enable a win-win for our small, medium and large restaurants and the food delivery ecosystem.”
A Zomato spokesperson said the company was looking forward to the follow-up meeting on Friday to “discuss potential solutions and way forward” without answering specific queries on the revised terms.
As matters stand at present, the food-tech platforms have their backs against the wall. By the middle of last week, nearly 3,000 restaurants had joined the #Logout movement. “As of date, we are talking about 2,900 restaurants logged out and more joining. Right now we are at a stalemate,” Anurag Katriar, head of NRAI’s Mumbai chapter said in an interview with TechCircle in Mumbai last Wednesday. Katriar, one of the restaurateurs leading the negotiations with the food-tech platforms, is executive director and CEO of deGustibus Hospitality which owns the popular Indigo restaurant chain among other properties.
If the terms proposed are taken on board by restaurants, the delivery numbers for the food-tech platforms will take a hit. So will Gurugram headquartered Zomato’s flagship paid membership programme Zomato Gold, which offers consumers incentives such as 1+1 on food or 2+2 on drinks while dining at partner restaurants.
The primary target of the #Logout campaign has been Zomato Gold. Matters escalated when Alibaba-backed Zomato, in an email to restaurants, discussed extending the benefits of this membership to delivery orders. That, coupled with the launch of its Infinity Dining programme, which allows users to try everything on the menu for a fixed price and order any dish of choice again during each visit, led to around 2000 restaurants logging out of Zomato’s delivery service, Zomato Gold, Swiggy, as well as dine-out platforms such as Nearbuy, Magicpin, DineOut and EazyDiner.
“Deep discounting has been a worry for everyone in the (restaurant) business. We also want to correct the narrative that the food-tech platforms are paying for the discounts. They are not. We (restaurants) are paying for it. Customers enjoy the benefit and that’s fine. We have nothing against that. But not at our cost completely. That’s not acceptable,” said Katriar.
The movement has impacted the number of orders processed by food-tech platforms, of which Zomato and Swiggy are the largest. “The number of orders have come down from 18-20 orders a day in certain localities to less than 14,” an executive with a last-mile delivery provider said. He added that during the past few weeks, as matters came to a head, some of the restaurants went offline during peak hours, leading to a dip in the number of delivery orders.
All that glitters is not...
The backlash, chiefly because of Zomato’s Gold programme, has been brewing for a while, said a Bengaluru-based entrepreneur who worked in the food-tech sector. “This was bound to happen as restaurants realised that food aggregators were getting more and more powerful each day. It is not an absolute fight between the two and it will be good in the long term for the restaurant owners,” he added.
A restaurant owner in Mumbai said there was a serious mismatch between promise and reality with respect to Zomato Gold. “We got an email saying that if we want to leave the Zomato Gold programme, we will be penalised if we decide to come back. The terms were changed without consulting us,” he said, requesting anonymity.
About three weeks ago, during the #Logout campaign, Zomato sent an email to restaurants stating that it would start penalising restaurants if they failed to meet the standards for improving delivery. The email included clauses such as “late fee of Rs 5 per order for delay in accepting order from 2 to 4 minutes of order placement time,” to varying degrees of fines for delays in handing over the order to the delivery partner beyond 10 minutes of the ‘Kitchen Preparation Time’.
This led to restaurants being charged a fee for non-compliance and some of them switched off from the platform. The same was reversed by Zomato within days. Restaurants received an apologetic email saying that no penalty will be levied for failing to meet those requirements.
In the entire standoff, Zomato has had to change its stance a number of times. Things came to a head on August 23 when Zomato founder Deepinder Goyal tweeted that the company was logging out of the discussions with the restaurant associations. By August 30, however, during a workshop organised by Competition Commission of India, Zomato’s food delivery CEO Mohit Gupta was assuaging restaurant association representatives. In the interim, Zomato has had to scrap any plans of extending its Gold programme to delivery orders and hit pause on Infinity Dining.
“Infinity Dining was launched just over two months ago in three cities with 300+ restaurants. The product is in alpha stage and being tested continuously. We received a range of feedback about the service and have paused it as we incorporate the feedback,” said a Zomato spokesperson in response to emailed queries.
Why Zomato needs Gold
Though not central to its revenues, Zomato’s Gold programme has some key advantages for the company. “Gold includes the top 1-2% of the premium customer segment. These are the users Zomato can monetise and build on to remain the food platform of choice, going beyond deliveries,” said Satish Meena, senior forecast analyst at Forrester. It may, therefore, be difficult for Zomato to shut down Gold, the chief demand from restaurants, considering it’s the only hook for prime customers on its platform.
“Gold is a good product to develop and was creating sticky users who transacted frequently. This reflected in their offline behaviour as well,” said the entrepreneur cited earlier. However, the value proposition for restaurants was low.
Zomato Gold is also central to monetising the dine-out option for the company, a space where it has a lead over rival Swiggy with menus and reservations for dine-out. The latter is a clear leader in the food delivery space and has remained reasonably immune to the controversy by virtue of not having a competing product to Gold and better negotiation skills. However, its private label business, such as The Bowl Company, has come under fire for using data from restaurants to build a selection of the most popular dishes through its cloud kitchens. This pits the Naspers backed Swiggy in direct competition against its restaurant partners who are on the platform.
Gold is likely to make up $20-$25 million in revenues for Zomato by the end of 2019 and contributed 12% of the company’s revenues for the financial year 2017-18. In some ways, it also is significant for the company’s pitch to investors for its critical next fundraising round and its valuation. The company last raised a capital round in March, when Delivery Hero, Glade Brooke Capital, Shunwei Capital and Saturn Shine joined the cap table to invest $315 million. The company, according to multiple media reports, has been in the market for a $1 billion round for a while and is priming for a $3 billion valuation.
With these broad contours, it is possible that both food-tech platform and restaurant owners will stick to their guns till the next popular idea on the block leads to a tipping point for either parties.