Scarred by steep commissions, restaurants are now mounting a pitched battle against food delivery aggregators.
NRAI claims that direct-to-consumer channels are more profitable for restaurants since aggregators tend to charge hefty commissions with some of them charging as high as 30%
NEW DELHI :
It took two decades and a pandemic for the Big Chill Café, a popular Delhi restaurant, to consider the home delivery of its signature piri piri pasta, Mississippi mud pie and Oreo shakes. The casual eatery, with eight outlets in the national capital and four dessert outposts, used to be so packed with diners that its owners had never even thought of home delivery. But in March 2020, when covid-19 cases started to surge, shutting down commercial establishments like restaurants and entertainment complexes, Big Chill’s promoters were compelled to re-consider their dine-in policy.
“We had to learn a few new tricks," Aseem Grover, promoter and director of Big Chill Café, said in a video call. Grover skirted restaurant aggregators like Zomato and Swiggy which, he claimed, had been wooing Big Chill to list on their platforms. Instead, Grover, who wanted more control over order delivery, reached out directly to consumers. The steep commissions that the aggregators’ charge and their perceived data masking practices were his chief concerns.
In July, Grover partnered with DotPe, an e-commerce and payments startup, which helped the chain build an online ordering platform that included a provision for takeaway. Pidge, a delivery service, handles all the deliveries in Delhi and its satellite towns.
By the second round of regional lockdowns in the summer of 2021 when restaurants had to shut their doors again, Big Chill’s direct order platform was bringing in about 30% of the pre-pandemic business. For many casual eateries, even just a year ago, delivery accounted for not more than 10-15% of the restaurant’s overall revenues, at best.
As restaurants reopen again—with hard limits on seating capacity—many casual eateries estimate that the share of delivery in the overall revenue pie would hover around 30-40%. Essentially, the incentives and trade-offs in the restaurant-food aggregator equation have dramatically changed in a matter of months. “This is a long-term call and not just linked to the pandemic," said Grover .
Securities firm CLSA estimates online food delivery to expand by 21% (CAGR) to $11 billion between FY20 and calendar year 2026. Foreign brokerage CLSA calls it “one of the fastest-growing segments in Indian e-commerce". As the pandemic props up a booming sector even further and casts more uncertainty on the future prospects of dine-in restaurants, the National Restaurant Association of India (NRAI) and standalone restaurants are doing everything they can to mount a fightback. Their priority: establish alternative channels to reach customers. Swiggy and Zomato declined to comment for this story.
For several months, NRAI has resisted aggregators, who continue to hold considerable sway over those who order restaurant meals from the comfort of one’s home. It wants restaurants to have more control over who they serve and at costs that are sustainable to their owners.
NRAI recently organized a slew of bootcamps, bringing together restaurant chains and providers of food technology solutions, such as Thrive, Peppo and DotPe—firms that can help brands build a direct-to-consumer reach. The bootcamps were part of the association’s #orderdirect campaign.
“Saving on commissions is key to the survival and thriving of our business, even more so today than ever before," Gauri Devidayal, managing committee member of NRAI, and a partner at restaurant firm Food Matters said at a session organized by the restaurant association in May.
The intent is to break away from the duopoly that exists in the online food delivery market by driving more consumers to standalone, branded online food stores. This will help these restaurants to build a comprehensive customer database and work on their margins. The channels will be an “alternative" and not a “replacement" to aggregators, NRAI said.
Commissions that aggregators charge clearly remain a pain point for most food businesses. Aggregators in India can charge commissions between 15-23% of the average order value, CLSA said in an April report. In select cases, commissions and take rates can be as high as 30%. Then, there are platform-induced discounts and marketing costs.
NRAI claims that direct-to-consumer channels are more profitable for restaurants. Among the three new ordering platforms—DotPe, Thrive and Peppo—an average order value of ₹400 could cost the restaurant around 14.5-17.5%, inclusive of the delivery cost that could be in the range of ₹55-60, estimates by NRAI suggest.
This price difference stems from the fact that most new service providers offer parts of their services, which means that while they help integrate deliveries for these restaurants, they do not charge for deliveries. Aggregators, on the other hand, often club everything together—from ordering and payment gateways to restaurant discovery and end delivery. This helps aggregators demand a higher cut as commission.
Current NRAI estimates suggest that at ₹25,000 crore, app-based aggregators have a 6% share of the total restaurant business in India. The industry reports monthly order volumes of 75 million, with the value size averaging ₹225-325, CLSA said. The numbers are significant enough to unnerve the restaurant industry. More recently, Amazon too has entered food delivery although it’s largely restricted to select areas in Bengaluru.
The initial response towards the #orderdirect campaign has been “positive", said Devidayal. “There is growing awareness. We have always been conscious of the fact that the user experience part of it is not as seamless as an aggregator app, but we still see consumers order direct."
DotPe, Thrive, Peppo
Since February 2020, DotPe has signed deals with 15,000 restaurants, including outlet chains like McDonald’s and Starbucks, said Anurag Gupta, co-founder and chief operating officer, DotPe. DotPe is an offline-to-online (O2O) platform that enables small and medium enterprises and merchants to digitize their business. It also allows users to order by scanning a QR code or using WhatsApp. The platform, which has also integrated logistics providers with its services, is backed by Pay-U, Google, and Info Edge Ventures. DotPe charges merchants around 1-3% of the order value including the payment gateway charge—a sliver when compared to what aggregators charge. It also works on a monthly subscription fee.
Most restaurant partners that work with either of the three platforms have to pay the logistics fee or pass on that cost to the end consumer. Mumbai-based Hashtag Loyalty, which launched its online delivery platform Thrive last year, added 800 new restaurants to its platform in May 2021 as the second wave of the pandemic peaked and states reimposed lockdowns.
Thrive offers “unbundled solutions" to restaurants such as digital menus, payments, logistics, customer insights and data, point-of-sale integration, email and SMS marketing, ads on Facebook and promo codes. Restaurants can create their digital store on a fully hosted microsite. Its system is integrated with logistics firms such as Dunzo, Shadowfax, Wefast and Pidge. Thrive has 3,500 restaurants using its dashboard currently. Some of them have already reached double-digit orders via direct delivery, said Dhruv Dewan, co-founder of Hashtag Loyalty, adding that its target is to reach close to 10,000 restaurants by the year-end. Thrive charges a flat fee of 3% per order along with goods and services tax and a payment gateway charge. Delivery charges are decided by the restaurant partner.
In Bengaluru, Naman Pugalia founded Peppo Technologies earlier this year. Peppo is an online delivery platform that lets restaurants sell across channels—online aggregators, social media platforms, messenger apps and their own apps—and connects them to logistics providers using a dashboard. Pugalia said the onslaught of aggregators has been bittersweet for the restaurant industry. “The onslaught has been sweet because of the surge in volumes as well as the predictable delivery that they bring but it has also been bitter because the commissions tend to be onerous, with no data sharing. Their tech stack is tightly bundled, which means it is hard for restaurants to just use one or the other service on the aggregator," he said. Peppo plans to charge ₹10-15 or 10-15% of the order value, whichever is lower. The idea is to have a “predictable fixed fee" on the technology stack, Pugalia said. Its product is currently used by over 100 restaurants. Peppo is backed by Infosys co-founder Nandan Nilekani.
Coffee chain Barista
The pandemic pushed Barista to re-think its business and consider a more omnichannel approach. It partnered with DotPe in May 2020 starting with 7-8 restaurants as it sought to create a “parallel channel over and above Zomato and Swiggy," said Rajat Agrawal, chief operating officer and head of corporate finance.
The push for alternatives beyond aggregators is more pressing for restaurant chains that are losing out on the dine-in business as restrictions related to covid-19 remain in force. So, the need is to get the unit economics right, said Agrawal. “Going forward, if the larger chunk of business has to come from delivery, the yields have to improve. If they cannot be matched to dine-in, then they have to be somewhere closer," he added. Of the 275 outlets operated by the coffee chain, most of them have been integrated with DotPe for delivery and take-away. Over the last 2-3 months, the chain has achieved significant results from its own delivery and takeaway channel, he said. Barista is pushing marketing campaigns to enable advertisements that promote self-delivery.
“Everything we do on Zomato and Swiggy is also done on our DotPe and digital platforms," he added. “Eventually, we want to pass on (the) benefits directly to consumers rather than paying hefty commissions to aggregators. I want to incentivise my consumers than pay that extra money to manage deliveries which can be done at a lower cost."
Dhaval Udeshi is partner, Chrome Hospitality, that runs restaurants and pubs such as London Taxi, Butterfly High, Silly in Mumbai, said that offering a differentiated menu on direct ordering platforms or launching exclusive menus can help drive traffic. The company’s brands have a strong following on social media, a fact it is trying to leverage. Close to 85% of its business is dine-in. But delivery is something the company wants to expand. Like Barista’s Agarwal, Udeshi feels that direct ordering is cost-effective. “If I’m giving 20–25% to the aggregator, on my own platforms, I can save more and pass on those savings as discounts to the customer," he said. The company plans to offer a 15% discount on direct orders.
Meanwhile, even as the restaurant industry’s efforts to shake off its dependence on food aggregators gathers steam, the market is now preparing for Zomato’s ₹8,250 crore initial public offering (IPO).
The food aggregator has moved to improve its unit economics significantly by scaling up revenue earned from commissions and increasing delivery charges billed to customers. Over the last few years, it significantly lowered discounts. On a per order basis, discounts were cut to a third as compared to previous year’s levels, Mint reported earlier. Its advertisement and sales promotion expenses per order have also reduced over time.
“A few restaurants could draw benefits but Swiggy and Zomato have a significant technology edge. Consumers are now used to this level of convenience," a retail industry analyst said on condition of anonymity. NRAI’s Devidayal reckons that while it is too early to say how much business restaurants can earn from direct orders, many small eateries will need aggregators to drive their business.
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