Several restaurants across India began delisting from food delivery apps — blaming their deep discounts — in a “#Logout" movement led by the National Restaurant Association of India.
Also read: The man leading the restaurant fight against Zomato and other food delivery apps says it is good for customers
CNBC-TV18 reached out to Zorawar Kalra, founder and managing director of Massive Restaurants, which runs nine restaurants across five brands, including Masala Library and Farzi Café, on the tussle between restaurateurs and food aggregators.
He spoke about why restaurants were forced to act against aggregators and what the move means for customers, among other things.
Edited excerpts: Can you explain why a large number of restaurants have logged out of Zomato and other food delivery apps? Is it a temporary pressure tactic to get a better revenue-sharing model?
Aggregator platforms like
Zomato Gold have had huge download pressure on the already razor-thin margin industry. Products were built without taking any inputs from the restaurants. Aggregators need to understand that the restaurant is the star. They are using our products to sell discounting addiction to the customer which is very dangerous. Addiction of any kind is poor and especially if you give a discount, it only has a negative effect on the industry at large.
A typical margin of the restaurant is 15-18 percent and some of these discounts amount to more than 25-30 percent, sometimes 50 percent which means the restaurant is losing money every time they serve a customer which comes from one of these platforms. There’s a huge amount of download pressure on the industry as a whole.
The Goods and Services Tax (GST) issue, where the input tax credit has been removed from the restaurant industry has had even bigger dilutionary and deflationary pressure on the margins and as a result, restaurants are finding it difficult to stay afloat. This is probably the toughest time that the restaurant industry is facing. One also needs to understand that the industry is the second-largest employee of human capital in the country and contributes to almost 2 percent of the country’s GDP.Three years ago, before these aggregator platforms came on, the growth rate was good. The industry was growing about 21 percent compounded annually, which means every four years, it was doubling in size. Margins were good.
Customers were happy if you were giving them a free dessert or a free cocktail. Now, if you don’t give 50 percent off, they walk out, even if they have loved your place.
Restaurants simply cannot afford this. If the margin is 15 percent how can I pay a 25 percent discount? It just means that I am losing out on 10 percent on every dish that I serve you. It is the fact that it is the final straw that broke the camel’s back.
The industry is not in the best of shape and as a result, these discovering platforms were scavenging from us and this kind of feudatory behaviour has to be addressed. We cannot be the cause of our downfall. And to protect ourselves, the industry has chosen to #logout on mass.
How does this whole model work in terms of revenue sharing? Did signing up/logging into Zomato Gold and similar services help in improved footfalls?
The whole model doesn’t work on revenue sharing. Zomato sells the subscriptions and whichever customers come to the restaurant, the entire discount has to be borne by the restaurant. Some of the aggregators even ask some of the restaurants to pay a signing up fee and if you opt-out of the program, you have to pay a huge fee to get back on. So, it is absolutely a predatory practice.
It is completely draconian in nature and it is something that needs to be addressed immediately. Our restaurants weren’t on Zomato Gold for a very long time. We have only tested it out and we only started it a few months back and we have it at only 2-3 of restaurants out of the 30. We were never a fan of any discounting platform and we have stayed away.
We’ve joined some because of relationship reasons. The whole increase in footfall is perhaps a misnomer and I think it’s an illusion because even if you do get an increase in footfall, you are losing money by giving a heavy discount. How are you gaining then?
In fact, every time you serve one of these customers, you lose even more money. So technically, the lesser number of footfall that the platform provides you, better it is for you as you lose less money. Mathematically speaking, it is important to ensure that you are rationalising these aggregators and the aggregators need to clearly understand that they can’t make restaurants pay such huge discounts without facing backlash.
Where does this whole issue leave customers?
I believe that we can serve better if these platforms go away because consumers love eating out and it’s always been a source of entertainment for Indians as we spend the highest amount of disposable income in eating out than any other form of entertainment.
The restaurant industry is 40 times larger than Bollywood and it brings joy to millions and this trend is always going to continue. The removal of discounts might create certain interim problems of certain short-lived issues where people who were addicted to discounts might start eating out less. I think this will definitely change because people inherently love to go out and enjoy themselves with their family and friends and they would continue to do so.
I do believe that the removal of discounts will have any form of long- term impact and people will continue to eat out. Moreover, since the restaurant will be more profitable, it will be able to focus more on high quality rather than dilute quality to serve the discounted customers.
Is there any scope for policy intervention or things restaurant owners would like the government to do?
I definitely want the government to be aware of the plight of the restaurant industry at large and as a result, we would want some of the aggregators to be coming under some form of an e-commerce policy, which is not there at the moment and as a result they are not governed as tightly as they should be.
Hence, I do believe that the government can be involved, see what’s going on and understand the plight of the restaurateurs and have a bilateral dialogue or rather a trilateral dialogue between the government, aggregators and the industry. It will definitely be a big help to us all.But I think the bigger thing that we humbly submit to the government is that we need an Input tax credit back as it has broken the back of the industry and completely eroded the margins. There are no margins to work with and in the end, the industry which is the second-highest employer of human capital is at risk. The last thing that I believe is that the economy doesn't want further unemployment, which may occur due to more restaurants closing down.