Home / News / India /  Unlock 1.0: Food delivery firms may face hurdles despite restaurants reopening

BENGALURU: Food delivery firms may continue to face challenges despite restaurants being allowed to reopen for business from 8 June as per guidelines issued for the phased exit from the lockdown.

For large food aggregators such as Swiggy and Zomato, food delivery accounts for 75-80% of their business. At present, such food delivery firms are working with only half their restaurant partners operational for delivery.

Gurugram-based Zomato said 50% of its restaurant partners have started offering delivery compared with 30-35% during the second and third phases of lockdown in April. For Bengaluru-based Swiggy, supply has been limited to 25-40% compared with pre-covid levels, with more restaurant partners being operational in tier-1 cities.

“We see an impact on the supply side as the total base of restaurants is likely to go down. And post- June 8, the outlets in high streets could potentially witness more delivery potential compared to malls," said Rishav Jain, senior director and lead – consumer, agribusiness and retail advisory, Alvarez & Marsal, a management consultancy.

"Many restaurants, largely standalone, might not be able sustain the lockdown impact and this is likely to reduce delivery potential for food aggregators. There is a possibility that margin agreements with restaurant partners might get revised."

Jain added that market leaders, collectively, were averaging a run rate of 2.5 million to 3 million orders per day during pre-covid times. However, this dropped 60-70% during the lockdown due to operational issues and restaurants shutting shop.

In May, National Restaurant Association of India (NRAI), which has close to half a million restaurant members, said the industry was staring at large scale shutdowns and massive job loss, with the imminent closure of many food and beverage establishments.

“For restaurants, availability of manpower (chefs and other kitchen staff) will be an initial challenge and many of them who have been focused on dining may have to adapt themselves for delivery as well. Apart from this, restaurants may also have to introduce new and dynamic menus and reimagine recipes to find equilibrium between changing demands and product availability," said Mohit Sardana, COO- food delivery at Zomato.

This lack of supply has also started to affect demand with consumers.

“Customers have shown intent to purchase, as can be noticed by them visiting the app and trying to place orders, but not going ahead because of multiple reasons such as shortage of supply or their favourite restaurants not delivering at the moment. This number is significantly higher than the number of customers who have been placing orders," said a Swiggy spokesperson.

Swiggy said it has been witnessing an increase in the average order value with customers ordering larger quantities, and hopes that reopening of restaurants for dine-in is likely to contribute positively to the overall supply.

Orders on Zomato have been fluctuating and dropped 30-40% during the lockdown compared to pre-covid times.

“We, of course, expect this to improve significantly over the coming weeks. Consumers have been sticking to ordering their comfort meals such as chicken biryani, garlic bread, samosas and Idli- Vada," said Sardana.

“Demand could take time to revert to pre-covid levels. Benefits that aggregators have is that the demand for dining-in at restaurants is likely to take a hit, resulting in consumers ordering-in ... One can expect a spike in online food delivery, both to replace dine-in and to reduce the fatigue from cooking food every day," added Jain.

The eight metros and mini-metros in India continue to contribute to more than 60% of the overall food-tech market, according to Alvarez & Marsal.

Analysts also claimed that a chunk of delivery staff left for their hometowns during the first two lockdowns, which may lead toshort-term operational hiccups for food tech firms.

“...We could potentially witness delivery boys coming back to the delivery fleet network within a couple of months. However, since demand of delivery agents would be higher than supply, it could lead to higher commissions and wages," said Jain.

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