The Impact of Delivery Aggregators on Indian Restaurants: Profits, Conflicts, and Alternatives

Synopsis:

A recent analysis reveals that despite having their own direct ordering channels, a significant portion of restaurants still rely on meal delivery aggregators like Zomato and Swiggy for a large portion of their profits. The high commissions and discounts charged by these aggregators have led to conflicts with restaurants, resulting in calls for a reevaluation of the terms. While some believe that aggregators are not necessary, the duopoly in the delivery market and the challenges faced by restaurants indicate the need for a reworked system. The Open Network for Digital Commerce (ONDC) offers an alternative, but its adoption is still limited. Despite the ongoing developments, both Zomato and Swiggy remain optimistic about the growth of the restaurant business.

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Even while approximately 75% of restaurants have direct ordering channels like their own apps and websites, social media connections, or direct telephonic ordering to stimulate demand, they nevertheless receive nearly a third of their profits through meal delivery aggregators Zomato and Swiggy.

According to a recent analysis by JM Financial, which examined more than 135 restaurants located in the top 10 cities, over 85% of restaurants have higher price tags on their online menu compared to dine-in menu pricing to recuperate hefty aggregator commissions and discounts.

Although theoretically the organized food services business may exist without aggregators, this is unlikely to ever happen in practice. Due of aggregators’ scale, customer loyalty, and broad supply base, even several branded, chain restaurants acknowledged that they had little leverage over them, according to the survey.

These substantial incumbent aggregators, according to the National Restaurant Association of India (NRAI), are not necessary. Aggregators have increased demand, but over the past few years there has been conflict over the high commission rates they charge, which restaurants allege reduce their profit margins.

“Their average contribution to the restaurant industry should not be more than 15%, yet QSRS and cloud kitchens rely heavily on these food aggregators to stay afloat. Despite robust sales growth, there is now a strong duopoly in the delivery market, according to Anurag Katriar, founder of Indigo Hospitality and NRAI Trustee, who spoke with ET. “Nobody, neither aggregators nor restaurants are making profit, clearly indicating that the current terms need to be reworked, which has been an ongoing process,” the ecology is so toxic.

JM Financial stated that while though the average fees claimed by the aggregators were 27% of the average order value of the restaurant, the figure is likely exaggerated by the additional 18% GST that aggregators are obligated to collect from restaurants on top of their own commissions. Actual commissions might be between 22 and 23 % after that.

According to Swiggy, their food marketplace has increased sales for more than 2.8 lakh eateries by generating demand and attracting a large client base that is actively looking for a variety of eating experiences.

Restaurants can concentrate on producing outstanding culinary experiences while we handle the delivery. According to Rohit Kapoor, CEO of Swiggy Food-Marketplace, “We are committed to empowering and supporting the restaurant community and transforming the food industry landscape to provide a vibrant dining experience not just in major cities but also in smaller towns and cities.

Additionally, according to experts, the Open Network for Digital Commerce (ONDC), which enables restaurants to sell food directly to customers using smartphone applications, is still in its infancy and many eateries are still confused of how they may join the network. This is true even though ONDC charges no shipping fees to customers and has a far smaller commission.

In its fourth-quarter earnings call, Zomato stated that many of its restaurant partners receive several orders straight via phone, their own websites, or mobile applications.

HoReCa Expert Sunny Arora Stated

" It’s not only the commissions, Discounts - which the restaurant has to bare to stay alive in the market. They are forced by the aggregators to give heavy discounts to attract customers. Second is the CPC which eats half the money of the restaurant's sales. Overall the restaurant is burning more than 55% of the total income. "

There are many developments taking place right now, and we embrace any change or innovation that fosters the expansion of the restaurant business. And we’ll keep observing it and gaining knowledge from it. We currently don’t believe anything will threaten our ability to grow because of the low overall penetration. Therefore, everyone may now expand in this sector, according to Akshant Goyal, chief financial officer of Zomato, who made this statement to analysts last month.