While Zomato started making the news for all the right reasons with its sharp reply in a case of religious intolerance towards one of its drivers, the company’s image has gone downhill from there.
The Current State
Last week, Zomato personnel in Kolkata threatened to go on strike, as they protested that the food they were being asked to deliver was hurting their religious sentiments. In addition to this, they also aimed to protest against the lack of medical facilities for them and inefficient payout systems. “The company knows everything, but in spite of helping us, they are using false allegations against us,” Mousin Akhtar, a delivery employee said.
However, over the past few days, things have taken a turn for the worse. The #Logout campaign, which started off in Gurgaon spread like wildfire across the country. As part of the campaign, more than 1,200 restaurants across the country have begun to delist themselves from food delivery and table reservation aggregators such as Zomato, Swiggy, Dineout etc.
The movement is in revolt against the deep discounting practiced by these companies. The restaurants are also against the table reservation services provided by these apps, which eventually affects their business model. “The #Logout movement started in Gurgaon two days back has turned into a nationwide one, which just shows how restaurants across the entire spectrum have been suffering from the deep-discount epidemic,” said National Restaurant Association of India (NRAI) president Rahul Singh.
While the restaurant led movement is against all food delivery aggregators, Zomato seems to be the worst hit. More than 500 restaurants blacklisted the company in Ahmedabad, in spite of them seeing a 30% drop in sales owing to the boycott. They claimed that the heavy commission charged by Zomato was eating into their profits, while also accusing it of indulging in poor business practices
The situation is the same in Kerala. Members of the Kerala Hotel and Restaurant Association (KHRA), which has decided to boycott the aggregators, are worried that food delivery will do to them what Ola and Uber did to drivers: initially help widen their reach but eventually kill their earnings, especially through heavy discounting.
Why Are Restaurants Against Deep Discounting?
In theory, associating with food aggregator apps seems a must for any restaurant with ambitions. These apps provide delivery personnel and last-mile connectivity, helping the restaurants expand their reach. The deep discounts are given by these apps also help in generating a greater volume of customers for the restaurants. However, for all its rewards, deep discounting also hurts consumer behaviour. Food delivery apps hold the potential to switch customer loyalty from the restaurant to the app in the long run, thus affecting the number of customers that order from a particular restaurant. A Zomato user, for instance, may go for the cheapest or closest option rather than picking a restaurant deliberately.
It is feared that once the food delivery aggregators have enough clout over the $700 million industry, they will be in a position to manipulate the market in a manner which is most suitable for them.
The Issue With Zomato Gold
It is not only the disassociation with Zomato that is affecting the company, but its partners are also boycotting it in protest against the various services provided by the app, such as Zomato Gold
Recently 450 restaurants in Pune decided to stop accepting Zomato Gold, citing aggressive discounts and loss of business.
The Pune Restaurants and Hoteliers Association (PRAHA) sent out a message to its restaurant partners, following which many of them decided to boycott Zomato. With wafer thin margins and deep discounting to attract customers, many restaurants were unable to operate profitably. PRAHA members said most of the aggregators charge a 25% commission on home deliveries, besides offering heavy discounts. Smaller delivery kitchens and restaurants that use premium and genuine products suffer due to such aggressive discounts and commissions, prompting the boycott.
While Zomato started out as a boon for the restaurants, over time it has started to pose more problems than benefits. Another grudge from offline restaurant owners was that food delivery platforms used technology to study dishes that their consumers like and created their own private labels along with deep discounting.
If it plans to stay relevant in a market that sees more than 170 million customers daily, it needs to develop a business model that is beneficial for both the restaurants and customers. Because frankly, you can’t deliver food if there’s no restaurant cooking for you.