Restaurants vs Zomato: The fight is not over yet

The fight between internet food aggregators and restaurant owners is showing no signs of cooling off. But why are they fighting? As some would recall that some months ago, food aggregators like Zomato were aggressively selling their Zomato Gold package to people who order online food frequently. The deals were quite tempting buy-one-get-one-free offers were given on food and drinks for prices as low as Rs 1,500 per annum.

Gurgaon-based Zomato and others like Dineout and EazyDiner, as the restaurants claim, promised that these dine-in and table booking programmes would increase footfalls at the restaurants and, in general, increase their revenues. But it actually turned into a massive discount spree that rendered their sales unprofitable.

The restaurant owners retaliated in mid-August by starting out Logout campaign, which is spreading faster than the Amazon wildfire. Over 1,800 member restaurants of NRAI, the association spearheading the campaign, have opted out of the dine-in services of the aggregators despite the internet firms trying to appease the food outlets. Largest aggregator Zomato says that the Gold restaurant-partners are much higher at about 6,500, which highlights that not everyone is protesting.

With the fight between both groups seems to be escalating, there are millions of jobs and billions of revenues at stake. The organised food services segment, which is primarily engaged with aggregators, is about 35 per cent of the overall food services market, which had a size of Rs 4.24 lakh crore and employed close to 7.3 million people in 2018/19.

Several rounds of meetings between restaurant owners and Zomato have resulted in the latter coming out with a modified Gold programme this week. This included rectifying the buy-one-get-one-free offer, limiting the usage of programme per user, discontinuing the trial packs, and setting up a minimum Gold membership fee at Rs 1,800.

"The biggest pain point we heard was that 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. To solve this, we will limit Gold usage by a single user to one unlock per day. This will ensure that customers complete their dining experience at a single restaurant, bringing the net effective discount down significantly. Another big pain point that we heard was about multiple number of Gold unlocks per table. Going forward we are going to restrict the number of unlocks to a max of two per table," said a letter from Deepinder Goyal, founder at Zomato.

It's reported that these changes by Zomato have not been accepted by restaurants, and they are still planning to pursue the campaign against Zomato. However, other aggregators such as Dineout and Magicpin have diluted their deep discounting schemes to the restaurants' satisfaction.

"In an industry with already razor-thin margins, the deep discounting being offered by some of the aggregators creates huge pressure on the industry. The adoption rates were high initially to get on to these platforms due to competitive pressures... we believe in a sustainable ecosystem whereby aggregators help increase the size of the industry in a sustainable manner by focussing on quality rather than discounting. Only then can restaurants and aggregator platforms jointly thrive," said Zorawar Kalra, founder and MD of Massive Restaurants, a chain that runs brands like Masala Library, Farzi Cafe, and Pa Pa Ya.

Also, what started out as a tussle between restaurants and aggregators is swiftly transforming into a personal fight between NRAI president Rahul Singh (promoter of Beer Cafe brand) and Zomato's Goyal. In a tweet, Goyal took a dig at Singh by welcoming him to the "Gold" club. The tweet had a picture, which shows that Singh's Beer Cafe, which is vociferously supporting the Logout campaign, is already running discount Gold programme on its own.

Goyal further said that the actual fight is between large restaurants and individual restaurants, and Zomato is just being painted a bully. "On a democratised platform like Zomato, large restaurant owners have to compete with individual restaurants on a hyperlocal basis, and are not able to leverage their large presence to pull more distribution/profits... I would also want to urge the restaurant industry to proactively look for ways to reduce operating costs, so that eating out becomes more affordable for consumers," Goyal said in two different tweets.

Although Zomato has asked its Gold restaurant partners to serve a 45-day notice period before logging out, but it's not clear how many of them are listening. With membership programmes like Gold contributing a not-so-significant portion to the total revenues of restaurants, Zomato, which had reported a loss of Rs 2,035 crore for the year ended March 2019, has a lot more to lose in this bitter brawl.

Also read: Zomato in the soup as battle with restaurants over deep discounts intensifies

Also read: Zomato asks restaurants to serve 45 days notice before exiting Gold programme