The web page of Zomato Gold, the food service aggregator’s exclusive members’ club, pitches its perks with words like “limitless”, “privileges” and “complimentary”. The words reflect the general optimism in what is seen as an increasingly offer-driven segment of India’s food and beverages industry. But it’s another combination of words on the page, involving “valid”, “for” and “dining and delivery”, that could signal a new phase in the country’s online food delivery market.
With discount deals hotting up competition and leaving the customer spoilt for choice as more players enter the market introducing cuisines and food cultures, tussles over commissions and discounts between restaurateurs and aggregators are also marking a volatile phase for the food tech market. It’s an exciting phase too, as Amazon prepares for its proposed food delivery service, with what is reported as a significantly low commission range.
New food culture
The variety in options – in both pricing and cuisines – has continued to be a key driver for online food aggregators. The neighbourhood restaurant which announces itself as multi-cuisine and stacks in everything from coastal to Punjabi to Chinese may still not be the popular dine-out choice for the discerning foodie but on the app-driven food delivery spaces, access to assorted picks from varied sources is the big add-on. Benne dosas with kulhad chai, a low-cal lemon cake to close a parantha meal, a detox smoothie to go with a kebab platter – the range of choices could also be shaping a new food culture in our cities; drawing from many, plated as one. It’s hard to miss this all-in-one spirit in promotional campaigns as the aggregators address a wide range of customers, from the weight-wise healthy eater to the indulgent foodie – and everyone in between. The words, again, capture diversity in the customer profiles – “craving”, “wellness” and “binge” are standard hooks on these promos.
Rohan Agarwal, engagement manager, RedSeer Consulting, puts the growth rate of food tech market in India over the past four years at 150%. It’s expected to grow at 200% in 2019 at the current run rate; by the end of the year, it’s tipped to be a USD 5 billion market. “Aggregators and independent players – including internet kitchens – together deliver about 3.3 million orders a day. Over the next three to four years, the market could grow at about 50% year on year, with the next set of growth drivers shaped by new use cases. The online delivery volumes from the smaller cities don’t look very good now. As the market expands in these cities, the key will be in developing volumes through a more affordable, wider assortment of choices,” says Agarwal.
Zomato’s move, in September, to extend its eating-out incentives – complimentary dishes and drinks that are served to Gold customers at its partner restaurants – to home delivery orders is an important turn. It has set off intensified opposition by the National Restaurant Association of India (NRAI). The NRAI which represents over five lakh restaurants had already questioned the programme based on concerns over its deep-discount model that it claimed was unfair on the restaurant partners. The extension of the complimentary deals to home delivery also points to the dynamic pace at which the Rs-35,000 crore market is evolving. These are disruptions analysts call critical; these are moves that redefine market potential, models of insourcing and outsourcing, start-ups and the culture of dining, in and out. Diverse food spreads and offer-code discounts are keeping the customer content but the way forward, F&B industry leaders maintain, is in developing delivery models that protect the interests of all the partners.
It's a market of mores
Aggregators who are offering niche, healthy food options are a marginal presence in a market of mores but these players are also bringing new customer groups to the online space. Shubha N, a Bengaluru-based communications consultant, sees in branding like Eat.Fit, a balance in terms of quantity and quality. She orders food, typically, on days when she has already dealt with her share of traffic or when she doesn’t have to plan her daughter’s meal. She doesn’t look at restaurant ratings and reviews; pricing doesn’t influence her choices either. “When I have to eat restaurant food, I go to a restaurant. For meal delivery services, the founders matter. Like for Eat.Fit, the founder (Mukesh Bansal) is a fitness enthusiast, so he understands what I’m looking for. If the choice is between restaurants and home-run boutiques, I’ll choose the latter – to support home-based startups, they have a stronger word of mouth and sometimes, they are my friends,” she says.
WhatsApp groups that work on hyperlocal settings like neighbourhood communities or apartment complexes are also shaping a new segment in the market. At a more organised level, a new set of aggregators is offering exclusively home-cooked food. The bulk orders are placed by customers who seek a touch of home in friend meet-ups or work parties.
The NRAI’s India Food Services Report for 2018-19 estimates the food services industry market at Rs 4.23 lakh crore. The market is tipped to expand at a Compound Annual Growth Rate of 9% and reach Rs 6 lakh crore over the next five years. The report says the home and online delivery segment constitutes 25% of the market – 14% of it in takeaways and 11% in deliveries. It’s an expanding base that evolves with a discount-heavy approach and aggressive marketing that pushes offers ranging from week-long spreads from seven countries to ‘calorie challenges’ with overseas trips as the top prize. These come apart from the standard offer-code and 1+1 deals and referral-based discounts. The marketing push has hit a new level with aggregators entering the streaming video space with original shows designed around food. But not all the restaurant partners are amused with the competitive pricing which forces them to offer discounts to stay in the race for online clicks. They contend that the customers would, in the long run, be conditioned to the discount culture and the aggregator would continue to build on this clientele as the restaurateurs end up settling for less.
What's cooking?
The first signs of rebellion by the restaurateurs against aggressive discounts emerged in August, with more than a 1,000 restaurants leaving Zomato Gold, as part of a movement they called #Logout. The NRAI has also been engaged in talks with five other aggregators and has resolved pricing and other issues pertaining to the dining vertical. Though Zomato was in the line of a direct attack, the backlash was also built up over time as a concerted move against “predatory pricing” – as NRAI called it – adopted by key players in the market including Swiggy, Zomato and Uber Eats. Deepinder Goyal, founder of Zomato, had traced the controversy to the agenda of “a few large restaurant owners” to “sabotage” the aggregators because of their inability to effectively compete with independent restaurants on a democratised platform.
The NRAI has since termed the second round of meetings held with Swiggy and Zomato last month “largely positive” but says there is no significant progress in resolving the issues over Zomato Gold. The association reiterates that the programme, in its current form, is not acceptable in either dine-in or delivery segment The NRAI is also in talks with the big three in the delivery segment – Swiggy, Zomato and Uber Eats – and says some of the structural changes it sought could take at least six to eight weeks. Anurag Katriar, president, NRAI, says deep discounts in the range of “30% to 70%” and “high and uneven” commission rates remain major concerns for the industry. “Discounts were always there but the difference is that earlier, the restaurateurs decided the terms. They could offer discounts on a slack day of the week or slack hours of the day; when discounts are offered all through the year, there’s nothing special about them,” says Katriar. He maintains that the tussle is over terms of engagement – “The issue is with a business model that leaves one party to bear the costs of benefits the others are availing.”
Even as restaurateurs continued to leave the Zomato Gold platform citing low profit margins, findings of a recent study said the programme had been, interestingly, driving dining out habits. RedSeer, in research conducted in September, said 90% of Gold members tried out new restaurants “just because” of the programme. The findings said that after subscription, dine-out frequency increased from 2.8 times a month to 3.3 times a month. RedSeer called post-Gold business growth for partner restaurants “significant”; a 35% jump was recorded in bill volumes. The programme also led to an increase in new customers, 60% of the partners said.
“The study on Zomato Gold highlights how the restaurant partners have benefited. The partners, through the programme, have found new customers; more orders have meant better use of their infrastructure, effectively improving their bottom line,” says Agarwal.
For a new generation of food tech entrepreneurs, breaking the clutter also means identifying niches and building on hyperlocal platforms. Standing out in itself becomes a value-addition, as endorsed by startups that aggregate food custom-made for diabetics, design month-long healthy meal plans or engage in-house nutritionists. Masala Box, a food delivery aggregator operating in Bengaluru and Kochi, works with about 100 home cooks. Apart from individual meals and subscription plans, the company undertakes corporate and party orders and has its range of snacks and staples.
Bengaluru-based Oota Box serves, daily, 250 to 300 boxes to corporate and 50 to 75 individual customers. The company, which opened in 2017, now engages about 4,000 home chefs, over 300 of them active every day, says Srikanth Balakumar, co-creator, Oota Box. “We cater to a large number of senior citizens and customers with special dietary needs,” says Balakumar. At Oota Box, dishes are showcased in area-wise lists. The orders are placed in two ways – one, a home chef lists a dish on the website – a random search throws up a range covering BBQ grilled sandwiches, thalis, dhoklas, mutton paya and idiyappams – and the customer picks it; two, the customer creates a specific request for a dish and the aggregator takes it to chefs in or outside of the delivery area. Oota Box takes a 13% commission on deliveries, including payment gateway charges.
The big food tech push is expected to come from tier 2 cities but business cannot be built on speculated gains or the Fear Of Missing Out, say industry insiders. Food service aggregators have provided a platform to budget restaurants and one-room eateries, substantially improving their visibility and reach. The NRAI says the services have to be complemented with standardised commission and contract frameworks and delivery rights for restaurants that have the capacity to use their own delivery infrastructure. For new restaurateurs or caterers who are starting out, aggregator commissions in the 15% to 20% range could even be a decent deal for the reach they are getting through a popular platform, without a marketing budget. But discounts offered at the discretion of the aggregators make recovery a tougher ask.
Balaji S who has been running a kitchen and catering unit from his home in Coimbatore for a year says the commissions work out fine because he’s not spending on a dine-in facility or marketing. “I look at the first year of business as a testing phase and I’m now branching out to party catering and other segments. For a new player like me, it makes sense to be on online delivery platforms but the discounts do leave the control with the aggregators. More restaurants could also lose direct touch with their customers. If the aggregators use customer databases to open their own kitchens, it could be a problem for budget restaurants,” he says. The NRAI had, in its initial representation to the food service aggregators, sought “strict assurances” against monetising customer data.
It could take a few more rounds of talks to resolve the conflict over discounts. But there appears to be consensus that all-round market stability comes only with favourable engagement of all stakeholders, without reneging on the one key rule – that the customer is, indeed, king.