09 December 2019 12:37:53 IST

Zomato should focus on building loyalty rather than giving discounts

The company can limit the ZG membership plan to six months instead of a year

Zomato, one of the largest food aggregators in the world, plays an important role in improving quality, accessibility, affordability, and assortment scores for the restaurant industry. The key stakeholders are its employees, restaurant partners, regulators such as the National Restaurants Association of India (NRAI), and consumers.

Over 90 per cent of India’s organised food services market is dine-in, with delivery now at 8 per cent, according to a 2019 food service report compiled by NRAI. Food aggregators have emerged at an opportune moment. But over time, as online food orders have started to surge, what was supposed to be a symbiotic relationship between the two booming sectors is turning sour.

Five years ago, there were only a handful of online food aggregators. Today, the industry is a behemoth that ferries 80 million orders every month in over 500 cities. In all, food aggregators such as Zomato, Swiggy, and Uber Eats deploy over 4,00,000 delivery agents daily. Ordering food online is convenient, and restaurants gain from the extra visibility. But who is raking in the profits?

The power tussle

Five years into the food delivery boom, many restaurants have now come to the conclusion that they are losing more than they gain. The biggest frustration is the deep discounting game, which has started to hurt margins. Profitability was a central concern for over 2,000 restaurants that launched the #Logout movement and delisted themselves from the aggregator’s platform, since the number of Zomato Gold customers opting for “one plus one” bargains on food and drinks on their in-restaurant bills atarted rising. In addition to that, the recent upgradation in the Zomato Gold (ZG) scheme to the O2 platform has not at all been welcomed by the restaurateurs.

Several other concerns are also simmering. Given that ordering food online is an indispensable part of daily life for many Indians, there are fears of a tipping point. That is fuelling the urgency to reset the balance of power between restaurateurs and food aggregators.

Restaurants — both big and small — say they are increasingly finding themselves being coerced into accepting terms and conditions favourable to the aggregators. These include funding a large part of the discounts, using only the aggregators’ fleet to fulfil delivery, a drastic reduction in meal preparation time, and complete non-transparency over how in-app recommendations work and what restaurants can do to get recommended more often.

The customer data issue

Then, there are other concerns with regard to customer data — some restaurant owners claim that a few large aggregators refuse to share data on who their customers are. This, they added, is helping the aggregator build a vast database of consumers’ dining habits and even expand their own business in what can be seen as a conflict of interest by restaurants. They are increasingly shutting restaurateurs off from their customers, creating a barrier in building loyalty with them and indirectly making restaurateurs more dependent on the aggregators.

For any partnership to sustain long-term, it should create a win-win situation for both players. If Zomato doesn’t relent or become more sensitive to the restaurateurs’ woes, more disgruntled restaurateurs are likely to log out, look for alternatives beyond Zomato and list themselves on the platforms of competitors such as Swiggy. Eventually Zomato might lose a major portion of its pie and take a revenue hit.

On a cautionary note, food aggregators must be aware that they are only the middlemen between restaurateurs and consumers. Businesses will work even in their absence, but they cannot function without the other entities. Either Zomato should reduce the commission it demands from restaurateurs, or forego its deep discounting strategy. Being mindful of the stakeholders is necessary to ensure long-term partnership. Continuous hassles will eventually affect the customers, who might also switch to other aggregators.

Hence, Zomato should strategise in a way to create sustainable value for both restaurant partners and consumers, without playing one against the other. Also, it is not advisable to go back on its promise of offering invite-only service in ZG, as envisioned originally.

Redesigning the scheme

The list of things that can be done to rein in deep discounts and the action plan needed to shift the focus of diners from discounts to loyalty:

1. Coming up with a cap of minimum billing to be able to make use of Zomato Gold; this could be ₹800 in the food bill, apart from the discounted items, it will make sure to sell relevant non-discounted items to customers, leading to increase in profit per transaction.

2. Customers can avail discounts only on weekdays as restaurants face weak sales during that time.

3. Offering personalised offers, like Zomato credits, to loyal customers when they spend a certain amount on a weekly or monthly basis.

4. Royalty payment plan for restaurants should be solely based on total yearly sales; so, if less sales are done, subsequently refunding restaurants a certain amount would result in better goodwill and more restaurants tuning into ZG.

5. Zomato can limit the ZG membership plan to six months instead of a year for upcoming new memberships.

6. With the unpredictable environment, it is better for Zomato to concentrate on short-term strategies instead of rushing into long-term plans. The company can consider diversifying its offerings and tap other segments.

7. In an attempt to gain the trust of stakeholders, Zomato can extend its membership for existing customers and partners for a period of two months.

Gomes Anson Joseph


Daphne Thresa D

(The Second Runners-Up are in 2nd year PGDM at LIBA, Chennai.)