HUNGRY ? : Offline Vs Online
There is a spat going on between restaurant & food aggregators. Welcome to Contactless Dining.
In my last article i mentioned about DotPe and BroEat, two platforms which are emerging in the face of the pandemic where former will provide digital solutions (integrated with a payments system) to restaurants especially contactless payments and later into third party food delivery options alternate to leaders Zomato and Swiggy.
For instance, you go out for dining and instead of picking up a physical menu, they scan a QR code. It opens a mobile interface containing the digital menu. The items are selected, after which, the interface gets directed to a third-party payments gateway, and the order is placed. A notification of the order goes to the restaurant’s point of sale (PoS) machine. At your table you would be directed to a WhatsApp window, where you can do transactional communication (order updates, invoice copy, feedback, etc.) with the restaurant.
“Contactless” dining is the future. The way the digital food delivery has accelerated, it is not in favor of small restaurants/chains. With players like DotPe, it will take this game to a different level with no muscle power by either side.
Now you are wondering, Zomato and Swiggy also offers contactless service with its partner restaurants, but the real tussle would start in delivery and online ordering space. In this battle, technology and logistics would play the key role.
How the seeds were sown for this spat? In 2019, when restaurants launched the “logout” campaign under which prominent brands opted out of table
booking services of aggregators, including Zomato and Dineout. Zomato Gold offered flat discounts (like 1+1 on food and drinks) throughout the year. This annoyed restaurants as they were discounting from their pockets alongwith razor thin margins in the business.
As losses surpassed head, restaurants told Zomato to consult with restaurants before launching such aggressive schemes (Zomato Gold). Later, Zomato changed its model to a variable discount-led structure. But that didn’t improve things. Problems on the delivery side persisted.
India currently has over twenty lakh restaurants (organised and unorganised). If large players endorse these services (digital platform like DotPe), there will be a trickle-down effect.
Reason to launch an alternate digital platform are :
- Exorbitant commissions,
- Lack of restaurants’ control and anti-partner activities.
Initially the relationship started between restaurant and food aggregator on a sweet note but the it turned sour on commissions arrangement. Initially the rates were ~15% but it gradually rose to ~25% but restaurant business is already on razor thin margins and commissions played the devils role here, hence partnership does not make sense though the food aggregators helped them to deliver long distance orders as well.
The above graph shows the revenue growth over the years
But apart from commissions, what annoyed restaurants was cloud kitchens opened by food aggregators. Swiggy has four private labels – The Bowl Company, Homely, Goodness Kitchen and Breakfast Express, which compete with restaurant partners on its platform. Zomato had cloud kitchens as well but it let it go in February 2020. For restaurants, these are anti-partner activities because these private kitchens are fed with a lot of data that aggregators have gathered over a period of time from restaurants order
histories and customers behavior. Catalyzed by algorithm, this gives aggregators access to the demand and pricing situation across regions and locations.
There were instances where aggregators forced restaurants to offer discounts although they are not willing to do so. They had to offer it from their pockets to join the discount bandwagon which obviously dig a hole in their bottomline.
Aggregators are violating e-commerce norms since they are not allowed to operate their own kitchens (cloud kitchens) as marketplace companies. They offer bundled services, and restaurants have to compulsorily take all of them, including delivery services, to be on their platform, which is against rules. On top of their commissions are opaque.
Knock ! Knock ! : Opportunity
In this brewing spat there are opportunities for digital platforms who are ready to include the offline players who are at arms length from digital game. There are nearly ~97% of small and medium enterprises (SMEs), including F&B outlets, are still offline.
With tech and logistics partnerships, restaurants have more flexibility, can now integrate their online advertising with the DotPe enabled interface and deliver directly. This will save costs, and lead to higher bottomline and better marketing. Also, with this restaurants can offer more offers and discounts to customers leads to customer retention and loyalty.
With this partnership, restaurant can either give a flat discount (which could likely be higher than aggregators because of the savings on commissions) or absorb the delivery cost if the order value is high. And with virus biting into bottomlines, saving costs and protecting margins are becoming crucial. Already restaurants are facing the triple whammy of lesser footfalls due to safety concerns among consumers, government-imposed restrictions within outlets (50 per cent capacity is allowed, social distancing, etc), and depressing demand scenario.
A shift towards digital ordering also means cost effective marketing campaigns and more loyalty programmes. At the moment, the cost of acquiring a new customer and existing customer is literally the same for small restaurants, because they can’t differentiate between the two digitally. With tools offered by tech partners like DotPe, restaurants can store customer data,
and target them better.
Digital partnerships would help to reach the untapped market that is smaller towns. Zomato claims to be present in over 300 cities, its focus is largely the big metros where the bulk of its business is concentrated. There is a pent-up
food ordering demand in smaller towns that needs to be tapped. Restaurants don’t have the capacity to do this on their own, and hence they need handholding.
Although all these partnerships looks promising in the hindsight, but without having an end-to-end offering like delivery, payments and back-end support, this plan would just fall hard.
If restaurants were to do digital ordering and delivery through third-parties, the integration of the entire purchase journey of a consumer on a single plat-
form is essential. Consumers would not simply want to engage with two-three different entities if they have issues with their orders. All comes down to ease of doing transaction for the consumer.
Globally, new-age businesses such as ride-hailing services (Uber, Ola), food aggregators, and hospitality chains (like OYO) are facing severe issues with their partners. The fight between restaurant owners and aggregators is also playing out globally in countries such as the US, Singapore and the UAE.
Even as the restaurant industry prepares to wage a war against aggregators, one thing needs to be kept in mind — for customers, it doesn’t matter who’s serving them, as long as the ordering experience is seamless, and prices are reasonable.
“Treat the customers at your restaurant like you treat guests at your home. That’s the only secret sauce.”