Inside India’s foodtech turmoil: a competition went awry?

India’s two-week-long table reservation sector disruption still has no truce or peace in sight.

Source: Unsplash.

Over the past two weeks, India’s online restaurant discovery and table reservation industry has been thrust into what would go down in history as the watershed moment in its development course. And the tumult is only getting out of hand, with a likelihood to spill over into the delivery sector before it eventually escalates to a sweeping disruption that might undermine the country’s burgeoning foodtech industry.

At the center of the historical whirlpool, is the long-running discord between the restaurants and food aggregator services (FAS) over deep discount schemes devised by the FAS platforms. Although consumers enjoy the discounts, and the FAS directly benefit from it as price cuts attracting more discount hunters, it’s the restaurateurs who bear the costs.

We wrote last week that, in response to a growing grievance by restaurateurs against the steep discounts allegedly hurting their business, the National Restaurant Association of India (NRAI) ignited an on-going battle asking for local restaurants to pull out of the FAS platforms, including all the mainstream ones, such as Zomato, Dineout, EazyDiner, Magicpin, Nearbuy, among others. NRAI  represents more than 500,000 restaurants in India.

Unbearable cost

The two-week-long nationwide campaign to boycott FAS platforms—started with a tweet under the hashtag of #logout—has since swept across the country, leading around 2,500 restaurants from India’s major metropolises including Bengaluru, Delhi, Kolkata, among others, to log out from these platforms.

NRAI calls for its member restaurants to delist from FAS platform.

And with no sign of a truce happening in sight, there could be more to take part in the #logout campaign over time, a development that could weigh adversely on the aggregator apps that are already caught in a fiercely competitive sector.

In face of the mounting pressure as more and more restaurants pulling out of their platforms that are supposed to be used for discovering those eateries, a group of aggregator apps, including Dineout and EazyDiner, tried to salvage the situation by asking for an open dialogue with the trade body, with remedies to rejig their current discounting schemes.

Currently, many dining apps in India offer a different version of the loyalty programs that are loosely based on the same idea: giving diners something for free.

For instance, Zomato has its Gold program that let members enjoy free 1 on 1 dishes or drinks at partner restaurants, with literally no limits all year round. In addition, the cohort of EazyDiner, Dineout, among others, have a similar loyalty program to reward their premium members.

Zomato Gold boasts of 10,000 restaurant partners and over 1 million Gold subscribers as of March 2019.

Just days before the uproar, Zomato went further to launch an Infinite Dining initiative for its Gold subscribers, touting it as ‘eat and drink all they can’ at a fixed price at its partners, including more than 350 restaurants and bars from Delhi-NCR, Mumbai, and Bengaluru at its launch. The practice works in a way that practically turns any participating dining partners into a buffet, whereby patrons give consumers an all-you-can-eat offer at the price of a two-course meal.

And other aggregator apps all have something similar, such as Dineout’s Gourmet Passport or EazyDiner Prime. The former gives its subscribers a 1+1 on buffets as well as food and drinks at over 800 partnering restaurants.

While the dining platforms used their discounting programs as a way to onboard repetitive customers, the misuse of the programs by consumers is inflicting pains on the restaurants.

Even Zomato’s founder Deepinder Goyal acknowledged that there were cases where “users hop between places on a busy evening, claiming 1+1 starters at one place, 1+1 main course at another, and 2+2 drinks at some other.” Additionally, there is another issue of Gold ID sharing, a practice widely used by many Zomato users.

NRAI’s president Rahul Singh, who owns a chain of restaurant and bar, doesn’t think this is a fair deal. “What hurts the most is that these deep discounts are funded by the restaurants’ industry and not the aggregators.” Not just that, restaurants also “do not get any share of the proceeds that aggregators generate from guests as subscription fee.”

Restaurants say no

The FSA apps sought a dialog with NRAI last week. Most of the conversation revolved around how to rejig their current plans to help the restaurants with visibility at lower costs. For instance, Zomato suggested ten points ranging from restricting Gold usage to once a day to increasing the price for its Gold program. All these points boiled down to limiting the privilege and increasing the cost for a customer. NRAI didn’t seem to be impressed by the proposals, though.

The association is said to have rejected the new plans put forward by Zomato, which later on walked away from the conversation and turned to communicate the new terms with its partners directly.

The company’s founder, Deepinder Goyal, said in a tweet that “Zomato is logging out of the logout campaign. We have said enough and we are getting back to work. I am confident better business sense will prevail at the end.”

Local media citing sources said the meeting between the association and the aggregators, held last Tuesday, was fiery between both sides.

The NRAI’s dissatisfaction was simmering, with a reason. Its president, Singh said that Indian independent and chain restaurants have long displayed “strong resentment on deep discounting, data masking, high and uneven commission charges by online food aggregators.”

The association went further to escalate the dispute this Monday targeting food delivery companies in a move that could make this a more sweeping movement in the country’s foodtech sector.

It issued on Monday a notice to delivery services, which wasn’t the target of the row before, flagging its concern over practices such as “lack of transparency, deep discounting” and “abuse of dominant position.” The notice was said to be sent to Swiggy, Zomato, Uber Eats, and Foodpanda.

The notice says that NRAI sees a strong demand for extending the #logout campaign to the online delivery vertical as well. To be sure, the previous campaign until Monday was against steep discounting and mainly targeted Zomato, EazyDiner, and Dineout. With the campaign spreading to include delivery companies, it might affect delivery partners such as Swiggy, FoodPanda, UberEats, and Zomato.

Swiggy delivers 1.2 million daily orders across 300 cities, with 1 million for Zomato over 200 cities, per local industry estimates.

Competition went awry

The advent of the crops of Indian dining apps was well appreciated by the restaurants in the beginning as it helped diners discover new places to eat.

With a fast-growing economy and ballooning middle-class, India’s restaurant industry has been growing at a quick pace over the past ten years and is expected to keep growing into the next decade. However, the technology element has always been missing from the restaurants to make it more efficient when it comes to reservations and relationship management, which were managed either manually or via outdated systems.

The emergence of the FSA apps promised restaurants the benefits of state-of-art technological systems and better visibility among customers, major reasons that attracted restaurants to get listed on their platforms in the first place. However, as more and more table reservation platforms piped into an already crowded arena, they are getting competitive against each other, with pains and costs inflicted on the restaurants.

“The aggregators were promoting deep discounts to stay competitive amongst each other,” NRAI president Singh pointed out in a release out on August 20. “While one aggregator gave 1+1, the other had to adopt a 50% discount scheme in order to stay relevant,” he added.

Without playing down the importance of adding a flavor of technology to a restaurant’s menu, he said, “We’re not against the technology platforms.”  He went on to say that, the restaurants have concerns “around these aggregators misusing their dominant position to indulge in predatory behavior.”

Consumers caught in a whirl

While the aggregators and restaurants were busy with their exchange of resentment, local consumers also got caught in their row, with no truce in sight as the two sides are not seeing eye to eye anytime soon.  There already were cases of Zomato Gold subscribers who took to Twitter demanding a refund. In the interim, customers in Pune voiced their upset over the denial of Zomato Gold deals at the city’s 450 restaurants.

Consumers took to twitter asking for a refund.

Similarly, a Kolkata-based Gold user registered his complaint on August 19 on Twitter: “Hey @ZomatoGold, Please refund my money, none of the restaurants are accepting Zomato Gold. #LogoutZomato“. While another user threatened the company to not renew his membership as he believed the company was busy pleasing restaurants that has virtually killed the Zomato Gold program.

While Zomato is trying to modify the usage of Gold membership, it is yet to offer a solution to address the issues of its premium members being rejected a deal they signed up for.