India’s restaurants are at war with food delivery apps.
Since Aug. 15, over 2,000 restaurants across India have pulled out of the membership or table reservation programmes of leading food-tech ventures such as Zomato, Dineout, and EazyDiner, protesting deep discounting practices.
The National Restaurant Association of India (NRAI), an industry body of over 500,000 restaurants, is leading this boycott, which it has termed #logout.
Yesterday (Aug. 26), the outcry became louder as NRAI sent letters to Swiggy, Zomato, Foodpanda, and Uber Eats—which control nearly the entire food delivery market in the country—denouncing the massive discounts that, the group says, restaurants are forced to offer. NRAI also flagged other complaints, such as lack of transparency in calculating commissions that apps charge from restaurants.
Quartz spoke with Anurag Katriar, head of NRAI’s Mumbai chapter, on why the industry group has gone on the offensive, how far it is willing to go, and what is its endgame. Edited excerpts:
There has been discontent in the restaurant industry for quite some time. Why did you choose to protest now?
This has been one of the most spontaneous reactions we have seen from the trade body. This whole #logout campaign was planned over WhatsApp. It started at 6pm in the evening and was finalised at 11pm on Aug. 14. Right now, I am managing 17 Whatsapp groups.
It was the demand of restauranteurs because Zomato Gold and other plans were simply becoming unviable. When Gold first came in, it was supposed to be an elite dining programme which was meant for 5,000 people and 80-100 restaurants in the country, but Zomato eventually sold more than 1 million memberships. So what was supposed to be khaas (special) became an aam (commonplace) thing. That is where our problem began because customers who were not even my regular clients came with a Gold subscription and I was compelled to give something free on something.
Wider protest against food delivery came while we were running the #logout campaign for dine-out plans. We realised that the undercurrent against delivery apps was far bigger than the dine-out plans. For example, Gold was hardly impacting 6,500 restaurants, but delivery issues impact lakhs of restaurants. So when the whole thing came up, in fact, there was a pressure to log out of the delivery business as well.
Who bears the cost of membership plans? How are restaurants forced to offer discounts on food delivery?
Zomato sold Gold subscriptions to customers saying that their member restaurants will offer customers one-on-one food item or two-on-two alcoholic drinks free. Zomato collected the money from the customers, which is perhaps Rs150-200 crores ($20.9-27.9 million) over the year, and then it started telling the restaurants that I am pushing customers to you. The first few restaurants joined the programme on invitation by Zomato, but as restaurants increased, Zomato started taking onboarding fees from them, ranging from Rs20,000-50,000. Zomato created the FOMO that everybody else is on it, and if you are not there, you will miss out.
When the Gold subscribers come to restaurants, they get something free, the expense of which is borne solely by the restaurants. Zomato doesn’t contribute a penny towards it. This is how lopsided the whole business model is.
In many cases of deep discounting in delivery also, the amounts are borne by the restaurant partners. There are some cases where the aggregators bear a certain part of it. For example, they will propose Rs100 off, I bear Rs50-you bear Rs50. This is the best-case scenario. It is never a scenario where they will bear the entire expense of discounts. What is more perturbing here is that with a lot of smaller players, the apps force the discounts down their throats—that if you don’t take this discount, you may lose on orders.
The algorithm is all in their control. They control what is visible (in searches) and what is not.
Haven’t the aggregators also done good for the restaurant industry?
Absolutely. Let me admit without any hesitation that these aggregator platforms or delivery apps help expand the market quite a lot. The problem is not with the tech platforms themselves. We all welcome them. What we are worried about is uneven and unfair business practices. What we are trying to correct now is the lack of transparency and unilateral business decisions of the aggregators. We are looking for a level playing field. Not for a second is anyone saying that they are bad.
Have you been in touch with other restaurant associations?
We are in touch with FHRAI (Federation of Hotel & Restaurant Associations of India) and other national associations. Lots of city restaurant bodies have already joined hands with us. I’m talking of large cities like Ahmedabad and Vadodara, to small neighbourhoods like Noida and Mira Bhayandar near Mumbai.
If you go offline, would the customer be squeezed between your tussle with aggregators?
That would be very unfortunate, and I hope we don’t reach that stage. The consumer is king, and we want to serve them. While we are not accepting Zomato Gold, if somebody is walking in with a Gold membership, they look disappointed when it is rejected. But every restaurant partner is trying to do something for them to keep them happy, whether it is giving them something free or a general small discount. But nobody is trying to harm the consumer.
What solution do you think is best?
One, the discount that is offered by the restaurant needs to be limited. If you want to fund more discounts, you pay for it. We have basically understood that deep discounting may be getting the clicks, but it is not helping our business grow. We can find better ways to entice the customer.
What is your endgame here?
Honestly, right now the sentiment among restauranteurs around the country is to immediately log out of delivery also. It will hurt the business, and we don’t want to go that far unless we have exhausted all our options. We have been having on and off dialogue on the delivery business for a while, but it never happened in a formal atmosphere. Now the sentiments are running high, and I think even aggregators realise that they have to coexist peacefully. We have already received a reply from Swiggy. They are happy to meet us and we are trying to figure out a common meeting date. I’m sure others will join soon.
We have got enough tech-savvy people and corporations who have approached us in the past offering to create an aggregator platform together, and it’s not a very difficult thing. But let’s give talks a chance. Let it fail before we move to the next step.
While going offline is very easy, it is not good for the general economic environment. It would impact investment in the food tech sector overall. We don’t want to be disrupters like that.