Last year, the National Restaurant Association of India took the fight to Zomato and Swiggy after accusing them of monopolistic practices. This year, they’re sounding a cautionary note about something else and in today’s Finshots, we explain what’s going on.
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In May 2022, Swiggy splashed a cool $120 million to acquire Dineout.
For the uninitiated, Dineout was a discovery platform. You could browse menus, discover restaurants and even book tables on the app. And if you paid via Dineout’s wallet, you were also entitled to receive cashback and discounts. In fact, Dineout’s popularity rose in such a spectacular manner that in 2021, people were booking 8,500 tables every hour across India using the platform!
And so Swiggy thought, “Hey, we want to go after Zomato, but why reinvent the wheel in helping people discover restaurants for dining out? We have the cash, so let’s just buy the company!”
And it did. Swiggy acquired the company, took Dineout’s restaurant booking and discount feature and rebranded it as Swiggy Diner.
That’s the story so far. But you could turn around and ask — Why bring this up now?
Well, the National Restaurant Association of India (NRAI) — an entity that represents about 5,00,000 member restaurants, isn’t exactly pleased with the developments. In fact, they aren’t just miffed with Swiggy. They’ve also got Zomato in their crosshairs. More specifically the payment gateway — Zomato Pay.
But wait…what exactly is NRAI’s problem with these features?
Well, this is what they said: “Zomato Pay and Swiggy Diner both operate broadly on the same construct — no cost/subscription fee to the customer to participate; restaurants must compulsorily offer a discount in the range of 15–40% to be part of the program…Restaurants must also compulsorily pay a commission in the range of 4–12% on every transaction made via the respective payment gateway to Zomato or Swiggy.”
And if we had to take a guess about what they’re implying here, well, think of it this way.
So far, new restaurants have been at the mercy of Zomato and Swiggy for online deliveries. But with these new developments, they’re monopolizing the whole industry. If they’re constantly incentivizing people to book tables and pay online, then customers will inevitably depend on these platforms for all their booking and payment needs. You could be ordering in or dining out. You’ll likely use these apps. And if this behaviour becomes ubiquitous then every restaurant will inevitably have to pay the “Zomato/Swiggy” tax i.e. the exorbitant commissions NRAI keeps talking about.
But… they have another concern they say — Data.
The food delivery companies don’t share a lot of data with their restaurant partners. And they often struggle to build a profitable menu as a consequence. They know very little about you or where you’re from or what your eating habits include.
But aggregators have used this data to build and market their own “cloud kitchens.” They know what customers want, where they live, the order frequency and all that. They’re profiting off of this data while they continue to fleece restaurants. And NRAI alleges that this is patently unfair. They even filed a complaint with the Competition Commission of India.
But with aggregators now moving into new territories, their fears have only amplified. NRAI believe these middlemen will similarly “colonise dine-in data” too. They’ll benefit from it. They’ll sell the data to third parties and advertisers and make more money in the process. And considering restaurants will now have a very limited understanding of their customers, they could become more dependent on Zomato and Swiggy — a death knell, according to NRAI.
But Zomato and Swiggy will likely argue otherwise. Customers flock to these apps because they add considerable value. They offer convenience, discounts and cashbacks. And if restaurants do feel miffed, they always have the opportunity to band together and make their voice known.
Remember the #logout campaign?
When Zomato introduced Zomato Gold and forced participating restaurants to offer free food and massive discounts, many felt displeased with the predatory pricing strategy. Eventually, they made their displeasure known by logging out of the app entirely. That avenue is still available.
So Zomato and Swiggy will likely stand their ground.
And yeah, there’s an impasse right now. Both companies are under intense pressure to finally turn a profit while restaurants continue to heal from the wounds inflicted during the lockdown.
Who will prevail in the end? You tell us.
Until next time…