The ongoing dispute between Zomato and its restaurant partners can have widespread ramifications. In the past few years, the food service aggregator has pioneered the disruption of the traditional hospitality model, and has gained a unicorn status by running its online food delivery services.
In a broader sense, such friction is inevitable when an established business model is disrupted.
Contractual agreements
The Contract Act in India is inherently equitable in nature. Unilateral changing of the policies and contracts to suit the agenda for any stakeholders should be avoided so that no party has to face severe contractual obligations.
Further, the abuse of dominance and exclusionary practices like predatory pricing, rebates, refusal to deal, and denial of market access or exclusivity should be eliminated.
The food services industry cannot take advantage of these, unlike e-commerce platforms that operate on a delivery-led model that can play on scale of economies and clear the backlog items with higher discounts to offset the higher inventory cost.
Scope of policy intervention
-- Under the DPIIT, both parties could jointly look at the issue closely to solve their problems and boost equitable growth in the industry.
-- Aggregators can come under some form of an e-commerce policy. Government should be involved to understand the situation and pain-points of each stakeholder.
Dialogue intervention
Bilateral dialogue, or rather a trilateral dialogue between the government / regulators, food service aggregators and the industry partners could help reduce the tension built up and arrive at a common consensus accepted by all the stakeholders.
Better revenue-sharing model
-- Transparency regarding rules and the revenue-sharing model is necessary because restaurants are taking the hit for the deep discounts offered by the aggregator. Such a biased and uneven commission structure needs to be eliminated.
-- Profit Margins: There is a need for input tax credit; this has been removed, due to which the restaurant industry is finding difficult to stay afloat because of huge deflationary pressure.
Better business model
A transparent system of commissions or charges based on certain logical metrics, such as AOV (average order value), volume of business, etc., could be introduced.
Overview of aggregate business model
Unemployment issue:
The economy does not want further unemployment in a sector that is the second largest employer of human capital nationwide and with almost 2 per cent contribution to country’s GDP .
Eliminate unsustainable programmes
Zomato need not stop deep discounting; rather, the focus should be on creating programmes that are unique and which act as triggers for users to eat out. Too deep a discount also is not a sustainable or viable proposition in the long term.
Programmes like the Zomato Infinity programme (Zomato Gold members) are not sustainable due to limited supply issues. Further, ZG should not go back to being an exclusive invite-only service, as originally planned; rather, the Infinite Services programme could be eliminated.
How can the scheme be redesigned to rein in deep discounts offered to customers? What will be the action plan to shift the focus of diners from discounts to loyalty?
Collaborative product design
Products could be built and introduced after taking inputs from the restaurants. New products, schemes or offers could be introduced after discussions and deliberation with restaurants.
Generate loyalty among bargain hunters
Customers should not be conditioned to discounts each time they visit a restaurant.
Reconstructing its Gold service is necessary to help drive better margins for the restaurants by a policy of sustainable discounts. Further, the customer’s discounting addiction is not a long sustainable core value proposition. It only has a negative effect on the industry at large.
“ Discount is a privilege not a right that can be exercised by customers at every point of time”
Shift of focus: Customers should be provided with a platform to discover experiences and be rewarded for exhibiting higher usage frequency or brand loyalty.
Time-bound discovery campaigns: Restaurants need visibility and traffic, so time-bound discovery mechanisms need to be introduced.
Selection criteria: Restaurants must be aggregated and sorted based on multiple criteria, such as cuisine, price range, locations, and ratings.
Logistics: The logistics of pick-up and delivery must be optimised so that most orders can be serviced in the least possible time, by the fewest possible staff.
Information infrastructure: Vast databases of customers have to be maintained, with sensitive information such as contact numbers, email ids, physical addresses, credit card details, and fintech account details.
Guaranteed assurance: The FSA should address the concerns of other stakeholders and ensure there is no misuse of their dominant position to indulge in predatory behaviour, commercially and in tweaking the terms of engagement in it favour.
Secure transactions: FSAs must securely process transactions on online platforms, accept cash on delivery with its inherent risks, and maintain payment schedules with partner-establishments. Breaches of databases have put the data of millions of consumers at risk.
Visibility issues: The other issue restaurants have with delivery services is the bundling of discoverability with delivery. A restaurant’s visibility in search results should expand with an increase in the platform’s delivery services.
Restaurants need to reduce operating costs so that eating out becomes more affordable for consumers.
Capture the emergence of valuable mid-market food services segments (such as casual dining, fast casual and affordable international cuisine).
Localisation of the menu would enrich the eating-out experience and help attract new customers.
Value-added technology services can facilitate continuous improvement and can maintain food products fresh for a longer period.
A case in point is the UPI system and how it brought about a transition in the payment industry with minimum friction. By following this model, Zomato and its peers can create new frameworks and enable the restaurant industry to service a larger base.