Categories
Issue 23

The Price of a Burger: How Food Aggregators Are Eating Into Restaurant Sales

Jaidev Pant

Home-dining services and Cloud Kitchens are booming post the pandemic. However, this boom might not be as simple as it seems. Behind the success of third-party aggregators, lies the hidden suffering of restaurants and dine-in platforms.

With the onset of the Coronavirus pandemic and the expansion of digital services, one of the newest trends has been the burgeoning of food ordering via delivery services. Isolated at home with not much to rejoice about, people across the world took to ordering food to spice up the monotony of everyday life. In India, 61% of Indians in urban metros prefer home-dining services post the pandemic induced lockdowns, owing to factors such as hygiene and sanitation standards. Additionally, the vigorous and creative social media vision adopted by third-party aggregators, such as Zomato, has contributed to a steady rise in food ordering via such apps and services. 

Earlier this month, one of India’s leading food delivery firms Zomato announced a new delisting policy that would allow restaurants associated with the app to be delisted or removed from the app in cases of complaints regarding food quality such as rotten food, order mix-ups, etc. The policy, which was earlier set to be implemented on 18th April, was temporarily halted after interventions from the National Restaurant Association of India (NRAI) and severe backlash from the 500,000 restaurants listed under it. Such a draconian policy, devised without any official backing and awarding undue authority to food delivery partners brings to light the complex relationship between food aggregators and restaurants in India. 

Globally, restaurants have to pay delivery partners a commission of anywhere between 25-and 30%. Similar figures are at play in India, with restaurants paying a commission  of around 18%  to the aggregators. Furthermore, as of the new GST structure enforced since January 1st, food delivery apps collect a 5% GST from the restaurants and deposit it with the government on behalf of the restaurant. While this may be seen as a strategic move to prevent tax evasion by successful players in the restaurant world, it has a significant impact on smaller restaurants with annual revenues of less than 20 lakh, as they would now be liable to pay taxes to the third-party aggregators. 

One can argue that initiatives such as Zomato Wings, launched by the food-tech giant in 2021 which aims to help procure funding for cloud kitchens and restaurants by connecting them to suitable investors and strengthening their brand position are a boon to smaller ventures. However, such initiatives heavily increase restaurant dependence on third-party aggregators. As per a recent report, cloud kitchen numbers are expected to soar as high as 2 billion dollars by 2024. While such statistics and other trends of consumers preferring home dining services are indicative of a larger shift to cloud kitchens, such delivery kitchens cannot offer everything a restaurant can, and often strip away agency from dine-in restaurants. 

For instance, dine-in restaurants are able to develop effective and long-lasting relationships with their customers over time to ensure steady inflow and revenues. However, with the shift to cloud kitchens and delivery services, dine-in restaurants are likely to lose long-term customer loyalty, given that customers have minimal to no exchanges with the restaurant directly. Further, there is no scope for customizing orders to the extent that was possible in dine-in facilities, and the changing delivery partners with every order do not make things easier. 

The lack of direct consumer interaction with restaurants manifests itself as a problem when aggregators use the information received from customers as a means to propel their own services and labels, as was exemplified through the complaint filed by the NRAI against India’s dominant food delivery players, Zomato and Swiggy. On 7th April, India’s chief competition regulator, the Competition Commission of India (CCI) ordered an investigation into Zomato and Swiggy operations upon claims of unfair allegations. These include claims of the food-tech giants hiding consumer data from restaurants, not taking any accountability in cases of customer complaints, issues regarding price parity, and indirect coercion to enter into exclusive contracts with aggregators by way of a lower listing commission. Restaurants that refuse such a contract are then charged commissions as high as 30%. 

In the past, there have been numerous accounts of backlash from multiple stakeholders and civil society regarding certain malpractices adopted by platforms such as Zomato and Swiggy, the most recent being the flak for implementing a 10-minute delivery policy that would significantly endanger riders’ safety and potentially violate traffic rules. There have also been complaints about the lack of social security for workers in the gig economy, particularly in the delivery sector. While these are crucial to ensure workers’ welfare in an economy as fragile as the gig economy, there are other crucial aspects related to the restaurant industry that must be addressed to ensure welfare for other workers engaged in the business as well. 

There is no denying that third-party aggregators are of great importance to the restaurant industry in today’s world. However, there is a need for an inherent investigation into their practices and the heavy power imbalance in this complex relationship. This deep-dive is particularly important given the steep increase in fares on commodities such as fuel, which will most definitely impact delivery services over the coming months. Therefore, it will be interesting to see what the future holds in store for third-party aggregators, and what the results of the CCI probe yield. While the probe is just an appetizer of the restaurant world finally voicing its concerns, the main course is hopefully yet to arrive.

Jaidev Pant is a third-year student of Psychology and Media at Ashoka University. He is interested in popular culture and its intersections with politics, gender, and behavior.

Picture Credits: VCCircle 

We publish all articles under a Creative Commons Attribution-Noderivatives license. This means any news organisation, blog, website, newspaper or newsletter can republish our pieces for free, provided they attribute the original source (OpenAxis).

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