'Middlemen' Swiggy, Zomato win once again, restaurants bear the brunt: NRAI

Association details the impact the new discount programmes of these two entities could have on eateries

With Swiggy and Zomato recently announcing the launch of their new discount programmes, Swiggy Diner and Zomato Pay, respectively, the National Restaurant Association of India (NRAI) has, through an advisory, detailed the adverse impact these moves could have on restaurants.

Building their own payment gateways opens up the possibility for Swiggy and Zomato to also earn a commission on dining transactions, alleged the NRAI, claiming that the aggregators are making efforts to widen profit margins. 

“Both (Swiggy and Zomato) have reached peaks in terms of how much they can charge for delivery orders (currently in the range of 25-30 per cent), making efforts to widen the pie the only way forward,” said NRAI in a statement.

Both Zomato Pay and Swiggy Diner operate broadly on the same construct, says the restaurant association. They offer no cost/subscription to the customer to participate, while restaurants must offer a compulsory discount of 15-40 per cent to be a part of the programme. Restaurants must further pay a compulsory commission of 4-12 per cent on every transaction made via the respective payment gateways.

In addition, they must also offer discounts to anyone paying via the payment gateways irrespective of whether customers discovered the restaurant through Swiggy/Zomato or independently, said NRAI.

When contacted, a Zomato spokesperson said, “With our new dining product, now live in Hyderabad for a few weeks with great results, we are confident that we will create tremendous value and growth for the industry. We are looking forward to working with progressive restaurants in the industry.” Attempts to reach a Swiggy spokesperson failed.

Industry sources point out that both Zomato Gold and Swiggy Diner have been around for a few years. "Why is NHAI now concerned about these issues? Besides, no one is forcing restaurants to join the programmes," said one source.

Zomato Gold, launched in November 2017 as a dine-in only programme, operated along similar lines with the promise of matching premium customers (based on spending habits) to a curated set of premium restaurants, said NRAI. The customers had to pay a fixed annual fee to Zomato to be a part of the programme while restaurants would bear the cost of the discount, albeit without any sign-up fees, it added.

According to the NRAI, however, Zomato did not have the data to substantiate the claimed value of Zomato Gold. Further, premium customers did not rack up top notch bills at partner restaurants and brand value was being diluted among discount seekers.

This prompted NRAI to initiate the #Logout movement on August 15, 2019, wherein restaurants across the country protested against the aggregator. This ultimately led to a rollback of Zomato Gold.

According to NRAI, this is a win-win for customers who would enjoy discounts on dine-in orders. These discounts would incentivise customers to use aggregator payment gateways while restaurants would bear the brunt of higher commissions (4-12 per cent) and deep discounts (15-40 per cent). NRAI also pointed out that other payment gateways charge commissions of 1-1.5 per cent.

The restaurant association also warns about the long-term impact these payment gateways could have on the dine-in industry, citing unsustainable discounts coupled with a platform wedged firmly between restaurants and customers.

Further, this might perpetuate the false narrative that discounts are the only means to grow a business even in the dine-in industry, says NRAI.

“After being denied ownership of essential data of restaurant’s “delivery” customers, this will now open the floodgates for middlemen to colonize “dine-in” data,” the NRAI statement said, alleging that this move would “unilaterally and irreversibly” change customer’ terms of engagement with restaurants with the lure of discounts and cashbacks.