Zomato Controversy: It’s Delivery Apps Vs Restaurants In India’s Red Hot Food Service Market

Why Zomato is facing a pushback from restaurants... 

A courier of Swiggy, a food ordering and delivery service, holds take-out food from a Burger King restaurant in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)
A courier of Swiggy, a food ordering and delivery service, holds take-out food from a Burger King restaurant in Mumbai, India. (Photographer: Dhiraj Singh/Bloomberg)

When Purplebasil, a takeout-only health fast food chain in Bengaluru, stopped discounting on Zomato, its order volumes fell despite continuing advertisements on the platform. “I was told the algorithm is such until I use discounting, the visibility will remain low,” said owner Dhananjai Raja. He had no choice but restart the discounts.

Then a little over two weeks ago, the food ordering app pitched its Zomato Gold delivery programme. The lure was simple: boost sales nearly twofold. “The sign-up fee was Rs 10,000, and I was told it’s the most promising product and not signing up could mean decline in sales,” Raja said.

But there was a catch: apart from the fee, the restaurant will have to bear even more discounts.

The restaurateurs’ had had enough. With customers lapping up the ‘one plus one’ offers restaurant bottomlines were hurting.

Infact, a revolt had played out even before the launch of the Zomato Gold delivery programme. On Aug. 14, the National Restaurant Association of India, a lobby representing over 500,000 outlets including brands such as Beer Café, Smoke House Deli and Olive Bar & Kitchen, started a “#Logout" campaign in Gurugram - urging its members to delist from the Zomato app.

More than 2,000 restaurants quit in less than a week, the NRAI said.

Zomato didn’t respond to emailed queries sent by BloombergQuint.

Who Started The Fire?

With rising incomes, more Indians are eating out. The nation’s food service industry, currently pegged at around Rs 4.23 lakh crore, is estimated to touch Rs 5.99 lakh crore by 2022-23, according to a report by NRAI. And much of this growth is coming on the back of food delivery platforms. According to Redseer, the number of orders placed on such ordering apps has jumped from around 1.7 million a day last year to about 2.2 million in 2019. But these service providers’ hunt for profits has triggered the conflict with restaurants.

“These food aggregator apps have definitely given more option to consumers as the discovery has become easier both offline and online, coupled with convenience of getting the food delivered,” said Ankur Pahwa, partner and national leader for e-commerce and consumer Internet at EY India. “While initially the terms were more favorable to restaurants, now they are skewed towards aggregators,” he said, adding that a rebalancing is needed on the commercial terms so that it doesn’t put pressure on any one of the parties.

Moreover, he said, when a consumer is used to ordering online, then logging out from the these apps is neither beneficial to restaurant owners nor aggregators.

The Lure Of Delivery

India’s restaurants were largely dependent on dine-in patrons. But a surge in smartphone penetration and cheap mobile data plans fueled the growth of food ordering apps, whose promise was simple—to help restaurants entice new eaters, and cull data to enhance their business.

Backed by investors like of Ant Financial, Naspers and Tencent, online food ordering platforms are flush with capital to lure customers. Swiggy and Zomato together devoured nearly $2 billion of investor money last year.

To compete with takeaway food joints and small eateries, dine-in restaurants too hopped onto the online bandwagon to cater to takeout customers. However, competition among delivery firms to garner market share started to take a toll on restaurants.

For restaurants, getting listed on the apps comes at a cost. The aggregator charges a commission of anywhere between 18 and 22 percent of the bill, going up to 22-28 percent for Swiggy, as per information provided by restaurant owners. For Uber Eats, it ranges from 25-30 percent, according to restaurants surveyed by BloombergQuint.

On top of that, any discount that runs on the platform is fully borne by restaurants in most cases. “Most of the times it’s the restaurant owner who is footing the entire bill for the discounts,” Purplebasil’s Raja said, adding that participation of players like Zomato in discounts is very rare. “Even if they do, majority of it is borne by us.”

Restaurants BloombergQuint spoke to said they are increasingly being “coerced” to adhering to the terms and conditions that are favorable to food ordering platforms. “Aggregators are simply transferring the cost of customer acquisition to restaurant owners,” Raja said.

Agreed Ashish Gupta, owner of Bengaluru-based north Indian eatery Murli. Gupta, who stopped discounts since December, has seen his restaurant’s earnings fall by 20 percent. He, however, said his expenses has been “better”.

While Gupta was able to sustain without discounts, the lure of discounting is unavoidable for newcomers. “There is always this fear of missing out. What if your sales reduce if you stop discounting? They do it despite the fact they know this will hurt their balance sheet.”

But there is little hope for restaurants which operate in the vicinity of eating-out hubs. “If you’re in a dining hub which has multiple restaurants that are offering deep discounts, you are at a big disadvantage,” said AD Singh, founder and managing director at Olive Group of Restaurants, which operates chains like SodabottleOpenerWala, Olive Bar & Kitchen, Monkey Bar, among others, in various metropolitan cities. “In case of a small-scale restaurant, instead of having the business go away, they’re forced to partake in deep discounting.”

The industry, according to Singh, needs a level-playing field. “Food aggregators offer large discounts to customers at the expense of the restaurants. This does drive customers to you but there’s no loyalty to the restaurant and its offerings but just to getting deals,” Singh said, adding that aggregators understand that deep discounting, and manipulating ratings to the advantage of a restaurant that advertises, is not okay.

For ordering platforms, the race to get more users has entered the cloud kitchen space where restaurant owners can set up a takeout outlet, or own private food brands. Swiggy’s cloud kitchen business allows third-party restaurants to use its facility to prepare food. It also has its own private food brand, “The Bowl Company”.


To allay fears of restaurant owners, Zomato Founder Deepinder Goyal said in a letter that the company would limit the number of Gold ‘unlocks’ per table to two and users would be restricted to one unlock per day. For the uninitiated, that’s a restriction on discounts. Zomato said it would refund users who didn’t agree with the altered terms of the programme.

This, however, did little to mollify the NRAI. The lobby in its response said that the letter is another attempt to “stuff old wine in a new bottle”. Protesting restaurants remain united in the cause to “obliviate” the deep discounting phenomenon, and will “#stayloggedout”.