Restaurateurs say they run on a thin margin, as low as 10%, so giving discounts of 50% while running at this margin hurts their businesses badly.

Why 1200 restaurants are choosing to log off food apps like Zomato and Dineout
Atom FoodTech Sunday, August 18, 2019 - 12:52

Over 1,200 restaurants are logging off food platforms that offer discount programmes at dine-in restaurants. On August 15, led by the National Restaurant Association of India (NRAI), the restaurants decided to log out of Zomato, Dineout, EazyDiner, Nearbuy and others, claiming that programmes such as Zomato Gold, Infinity Dining and offers from other players are hurting their business.

Zomato launched Gold in November 2017, allowing those who signed up to get 1+1 on food and 2+2 on drinks from partner restaurants. As of March 31, Zomato Gold had over 10,000 partner restaurants and over 1 million active subscribers globally. In July 2019, Zomato launched Infinity Dining where one can order anything from the entire menu with unlimited servings at a fixed cost.

Similarly, Dineout offers Gourmet Passport, a membership programme that gives you a buy-one-get-one on buffets, food and drinks at over 800 restaurants across the country. One can even buy discount coupons for various restaurants for a fee as low as Rs 5. Dineout also hosts the Great Indian Restaurant Festival, an annual event offering 50% off deals for a limited time in several restaurants across multiple cities.

Nearbuy also has discount coupons for various restaurants.

For a consumer, these platforms offer great deals and help save a lot of money. At the same time, the apps claim they also help increase footfall in restaurants and thus help increase their revenue.

This might seem like a win-win for both consumers and restaurants. So, why have restaurants declared a war against these apps?

Products de-valued by deep discounting

Rahul Singh, owner of Beer Café and the president of NRAI, says that when aggregators started as discovery and community building platforms, unbiased reviews gave an insight into what the customer could expect. The apps also provided efficient search options with embedded maps, reservation and contact details. But, these platforms have now pivoted to a deep discounting model.

“Discounting blindly is one of the worst things you can do, because you’re conditioning your customer into de-valuing your product, and you’re literally throwing money away by putting it back on the table from the initial and future sales with that customer,” Rahul says.

Riyaaz Amlani, past president of NRAI and CEO and MD of Impresario Entertainment that runs over 48 restaurants such as Smoke House Deli and Salt Water Café, agrees. He says that these offers, especially Gold and Infinity, don’t increase footfall. They just take the plate and put it on somebody else’s table. The programmes do not build loyalty, which is what Riyaaz says restaurants want.

“Restaurants want to know who their customers are, build a relationship with them and serve them better. But here it is just about discounts, not loyalty. The general sense is that they are working towards their own benefit and not towards the benefit of the restaurants,” Riyaaz says.

Sibi Venkataraju, director and co-founder of pH4 Food & Beverages that owns Toit and The Permit Room, says that they never considered signing up for these platforms; his restaurants offer a product at its correct price and not do discounts or deals.

“Discounting is a habit that is hard to get rid of. If the reason why customers visit your place is because you offer these discounts, it is unlikely they would visit once you stop. It’s like getting stuck in a discount vortex that you can’t recover from. That might explain this protest from the restaurants,” he says.

For Abhijit Saha, director of Avant Garde Hospitality which runs restaurants such as Fava and Caperberry in Bengaluru, Dineout has worked in their favour, but Zomato Gold did not.

“One of our prime restaurants was logged out of Zomato Gold six months ago. We realised that we were not benefiting in any way. Those guests who didn’t even know that there is Zomato Gold at the table would come in and ultimately, we would have to give them a discount where otherwise we would have charged regular price. We realised that it increased footfall only by a small percentage while we ended up giving a substantial amount of discounts, which was not beneficial for us at all,” he says.

According to Abhijit, Gourmet Passport is well-defined, well-controlled and is mutually beneficial, but Zomato is ruining the very fabric of the business.

“The existence of Zomato or any other marketing platform that helps customers is because restaurants exist. There will always be a section of restaurants who are in distress, or who would like to see a marketing formula that may work for them if presented in a certain manner at any point in time. They (Zomato) have to be careful when they introduce a marketing style and ensure that they don’t destroy the infrastructure on which they themselves are dependent,” he says.

The economics

Riyaaz says that restaurants run on a thin margin, as low as 10%. Giving discounts of 50% while running at this margin hurts their businesses badly.

“The kind of language on the ground is that they (Zomato) say if you don’t sign with us, you will lose business, your ratings will go down. They say that if we sign up, they will ensure you get a better rating and double your business, etc,” Riyaaz says.

In fact, there is no monetary benefit that restaurants get from Zomato Gold. But it does add to their costs. A restaurant has to pay Zomato a sign-up fee – which Riyaaz says is Rs 75,000 — and also pay the company a regular commission. In addition, massive discounts are given to customers. This, Riyaaz says, only hurts the business.

According to Abhijit, deep discounting sets the wrong precedent as far as the market and customer expectations are concerned.

“This is completely destroying the market, where the expectations are now being set that if this restaurant can offer us a 50% discount on a 1+1, why can’t you? We don’t believe that it is a feasible option for a restaurant to have unlimited or restricted amounts of discounts, like 50% discounts, at all points in time. So it’s not acceptable, and it is setting the wrong precedent,” he says.

NRAI head Rahul adds that restaurants have already suffered due to increasing rentals and denial of input tax credit, and the situation has now worsened due to discounting behaviour. Rahul estimates that restaurants bear a loss of 10-30% from giving away such deals and discounts.

According to Riyaaz, food platforms do data masking, which means that the restaurants don’t know who is ordering what, where the order is coming from, making it hard for restaurants to plan better and retarget customers accordingly.

Rahul’s demands are clear: he wants apps to stop blind discounting and distortion of pricing, and come up with a sustainable model.

“Restaurateurs have come together to detox consumers from discount addiction. It will have some withdrawal symptoms for a short term, but one has to see a healthier lifetime cycle,” he adds.

What the food apps have to say

Zomato maintains that Gold was launched to drive the dining-out experience and is surprised at the logout campaign. It claims that less than 1% of the Gold restaurant partner base supports the challenges raised by the NRAI.

“Zomato as a platform is as much in it as the restaurants who saw merit in this solution and signed up to change consumer behaviour towards ‘eating out’. The initial response and the growth in the past 18 months is a testament to its success. It was extremely surprising for us to see a campaign of this nature being launched without the restaurant committee even calling for any discussion regarding the same,” a company spokesperson told TNM.

Dineout, on its part, says that it doesn’t believe in deep discounting and instead offers sustainable discounts that are viable for both consumers and restaurants.

“In consultation with restaurants we run promotional campaigns for short durations (and not through the year) such as the ‘Great Indian Restaurant Festival’, which gives a higher discount to the consumer but for only limited covers per restaurant per day. The restaurants are free to decide this cover limit, black-out timings and other such customisations that they might need to run their business in a more sustainable manner,” Ankit Mehrotra, Co-founder & CEO, Dineout, told TNM.

And this is something that Abhijit and Riyaaz agree with as well: that Dineout’s offerings are made in consultation with restaurants. Abhijit says that he’s happy with Dineout’s Gourmet Passport and intends to continue with it.

However, data masking is still an issue, Riyaaz says.

Zomato and Dineout say that they are closely engaging with their restaurant partners and working with restaurants to address issues.

On Saturday evening, Zomato CEO Deepinder Goyal requested restaurant owners to stop the campaign, admitting that they have made mistakes and things have not gone as planned. He also asked the restaurant industry to find ways to reduce operating costs.

“I would also want to urge the restaurant industry to proactively look for ways to reduce operating costs, so that eating out becomes more affordable for consumers – our only objective here is to drive the growth of the restaurant industry,” he said.

NRAI will be meeting with the companies on Monday to iron out differences and find a middle ground.

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