The man leading the restaurant fight against Zomato and other food delivery apps says it is good for customers

In recent years, food delivery apps such as EazyDiner (Prime), Zomato Gold, Swiggy, Nearbuy and UberEats have made ordering easier, and turned the restaurant business on its head. It made sense for restaurants to feature in these apps as they would gain greater visibility and a potential uptick in orders.

That arrangement continued. Until recently.

Several restaurateurs in recent days have pushed back against food aggregators. A raft of restaurants across India began delisting from these apps — blaming their deep discounts — in a “#Logout" movement led by the National Restaurant Association of India (NRAI).

Zorawar Kalra: A restaurant is losing money every time it serves a customer on a food aggregator

On August 14, the NRAI tweeted about the move in a bid to “detox customers from discount addiction”. Since then, more than 2,000 restaurants across India have opted out of food aggregator platforms, with multiple associations joining the movement, according to the NRAI.

Perhaps, people are still eating restaurant food like before. But they are not doing it in restaurants like before.

But NRAI president Rahul Singh said deep discounting is at the root of the fight against Zomato and other food aggregators.

Singh, who is the founder and CEO of Alco-beverage chain The Beer Café, told CNBCTV18.com that the decision to exit food delivery apps was taken on Independence Day. The aim was to give the restaurant industry freedom from aggregators that have distorted a vibrant marketplace by aggressive discounting and predatory pricing, according to him.

— NRAI (@NRAI_India) August 14, 2019

Singh offered insights on when the relation with food aggregators soured.

“Before the ‘colonisation’ by e-commerce marketplaces, customers were dining out and getting the experience expected from a restaurant. Aggregators started off as discovery and community-building platforms,” he said. “The unbiased reviews from others gave an insight to what the customer could expect. It also provided efficient search options with embedded maps, reservation and contact details.”

However, the model soon pivoted in a way that impacted local businesses, as these food companies battled to dominate capital dumping through foreign investors, according to him. “Aggregators claim to burn capital on the pretext of customer acquisition costs. If they don’t get their funding, they will have to shut down too,” Singh said. “If they change the hook to ‘embracing’ customers rather than ‘acquiring’ them, it can save us all from burning precious cash.”

In a separate interview with CNBC-TV18, Zomato co-founder, Gaurav Gupta said that close to 10 percent of their revenue comes from Zomato Gold and that they have taken feedback from their partner restaurants recently. He added that deep discounting is not favourable to anyone and neither is it sustainable. He explained that the focus was to create programs which would act as triggers for users to eat out.

Singh contended that the current terms and conditions and discount structures relayed by food technology companies are unjust and unsustainable.

But why will customers be upset with deep discounts? Singh said the idea of scoring a deal makes one feel they are beating the system, but in reality, blind discounting is one of the worst things aggregators can do, since it conditions the customer into de-valuing your product.

“Discounting works in the retail space so well because brands can limit supply – or at least make it look like it’s limited – and thus create a sense of urgency in the customer’s eyes,” Singh said. Unlike retail, though, where end of season sales are used to clear stock, restaurants don’t serve leftovers at discounted prices. According to him, massive price cuts negatively affect both the restaurants and customers.

“Providing a 50 percent discount or giving it for free certainly nudges the eatery to reduce portion size, artificially mark-up the price, or use sub-standard ingredients,” said Singh. “Discounts and freebies create a negative consumer perception.  Whenever a service is undervalued through price distortion, the genuineness of the service comes into question.”

So what happens next? Singh acknowledged that the campaign may result in certain “withdrawal symptoms” for customers in the short term, but insisted on a healthier lifetime cycle. He acknowledged the role of food aggregators as discovery and community-building platforms for restaurants, but noted their shift of focus as the foundation of the #Logout movement. “We only had and have one single issue: eradicate deep discounting.”

Sections of consumers have voiced concerns about restaurants bumping up their prices to drive larger profits. “Due to change in operating expenses, raw material and other market forces, the menu price is never fixed,” explained Singh. “In deliveries, some restaurants charge additionally for packing, while some include it into the menu price.”

Singh presented the six major resolutions the #Logout campaign sought to reach with food aggregators, in order to ensure fair trade practices and transparency between customers and restaurants:

Being marketplace providers, food aggregators should not be allowed to participate in inventory-based models of cloud kitchens.

Their suite of services needs to be unbundled. Delivery cannot be made compulsory for restaurant participation.

Excessive and predatory discounts need to be regulated, and restaurants cannot be forced to participate in them for marketplace presence.

Customer data needs to be made available to restaurants.

Food aggregators need to be transparent, upfront and consistent about the logic used in their search algorithms to ensure fair and non-discriminatory marketplace access.

No aggregator can insist that restaurants are exclusive on their platform.

The management committee of the NRAI held talks with some aggregators on Wednesday, which resulted in Zomato laying out a ten-point restructuring plan for its premium Zomato Gold service. In a mass email to the association and all the partner restaurants, the Gurgaon-headquartered company said September 15 was the deadline day to roll out all the improvements.

The changes include limiting Gold usage to one restaurant per day, restricting Gold unlocks to a maximum of two per table, introducing single device logins, issuing hassle-free pro-rata refunds to unsatisfied customers, discontinue trial periods for Gold, setting a minimum threshold for membership fees, strengthen its two-way feedback system, providing advertisement credits worth Rs 25,000, shoot free promotional videos, and personalise push notifications for non-peak days.

Despite these efforts, however, the NRAI and participating restaurants have refused to return to Zomato. While they validated Zomato’s recognition of the deep discounting problem, they said in a statement, “The ‘reconstruct of gold’ is another attempt to stuff old wine in a new bottle. It’s a tweak in the drug, which doesn’t solve the addiction.”

The statement also took aim at the “stiff penalty” introduced by Zomato on Monday, which was invoked if restaurants did not serve their notice period before exiting the Gold facility. “They have sweetened the pill in the form of free signup to rejoin the program.”

The NRAI concluded that the Zomato Gold service has been shifting goalposts since its launch in November 2017. Reiterating Zomato co-founder Deepinder Goyal’s words, the association said, “What started as an exclusive, invite-only privilege

Singh also revealed that several meetings had taken place between the NRAI, the food aggregators and the Department for Promotion of Industry and Internal Trade (DPIIT), and expects a positive outcome soon.

Anshoo Sharma, co-founder and CEO of food and lifestyle discovery platform magicpin, told CNBCTV18.com that after a productive session with the NRAI – which included Singh, Priyank Sahuja from Lazeez Affaire, Vikrant Batra from Café Delhi Heights, and Nitin Saluja from Chaayos – they agreed on technology’s role in engagement and retailer discovery, as opposed to deep discounting.

“We work at a base margin of 10 percent, and allow our partners to top-up anywhere from Rs 2000 to Rs 20 lakh, as per their marketing needs for the month, while delivering guaranteed returns on investment to them,” said Sharma. “We are fully supportive of NRAI's cause and are looking forward to working together to create sustainable impact for its members through the use of technology.”

Unsatisfied with the current developments, the NRAI concluded its statement by asking all restaurants to keep away from the aggregators for the time being. “We stand united in the cause to obliviate the deep discounting phenomenon, and will therefore stay logged out.”

In response, Zomato CEO Deepinder Goyal lashed out at Singh in a Twitter thread for incorporating the Golf service in his Beer Café outlets. He believed that Zomato was being painted as a bully in a fight between small and big restaurateurs. “The logout campaign, as it seems now, is driven by Rahul Singh, along with participation of a few large restaurant owners, to use the NRAI platform to sabotage aggregators and benefit themselves,” he said.

— Deepinder Goyal (@deepigoyal) August 22, 2019

Goyal added that the company stands by the changes it made to the Gold programme, conceding that enough was said and it was time to get back to work. “Zomato is logging out of the logout campaign. I am confident better business sense will prevail.”

The latest development saw Rahul Singh release a statement, which emphasised the use of technology to “avoid detrimental circumstances where discovery platforms have pivoted into discounting ones”. Furthermore, he acknowledged that loyalty “has to be earned, not purchased through discounts”, extending his gratitude to food aggregators Dineout, EazyDiner, magicpin and nearbuy for their efforts to resolve the deep discounting issues.

The statement concluded: “However, Zomato has decided to cut all ties through a statement of their assertion of logging out of the logout campaign. From our end, that simply implies #ZoGoisNoGo.”