Despite the fact that 75 percent of restaurants have their own ordering channels such as apps, websites, social media connections, or direct telephone lines to generate customer demand, they still receive about one-third of their revenue from food delivery aggregators like Zomato and Swiggy.
The Pricing Dilemma
A recent survey conducted by JM Financial, which included more than 135 restaurants across the top 10 cities, revealed that over 85 percent of them have higher prices for their online menus compared to their dine-in menus. This pricing strategy is implemented to compensate for the high commissions and discounts imposed by the aggregators.
The report states that while it is theoretically possible for the organized food services industry to survive without aggregators, in practice, that scenario is highly unlikely. Even prominent chain restaurants mentioned in the report admitted to having limited bargaining power against
aggregators due to their significant size, loyal customer base, and diverse network of suppliers. The National Restaurant Association of India (NRAI) argues that these dominant aggregators are not indispensable. While they have contributed to increased demand, there has been tension regarding the high commission rates that eat into restaurants’ profits.
Need for Reform in the Unhealthy Ecosystem of Food Aggregators
Anurag Katriar, founder of Indigo Hospitality and NRAI Trustee, stated to the Economic Times that aggregators’ contribution to the restaurant business should not exceed an average of 15 percent. However, quick-service restaurants (QSRs) and cloud kitchens heavily rely on these food aggregators for survival. Currently, there is a strong duopoly in the delivery space, but smaller restaurants face significant challenges despite experiencing robust sales growth. Katriar added that the ecosystem is so unhealthy that neither the aggregators nor the restaurants
are making profits, indicating the urgent need to renegotiate the existing terms, an ongoing process that has yet to yield satisfactory results.
