Illustration: Rahul Awasthi/ETtech
Discounts have dried up on Swiggy and Zomato amid a steep surge in demand for food deliveries across states even as stringent curbs to contain the third wave of the Covid-19 pandemic have forced many restaurants to down shutters.
“With restaurants shut down or operating under severe curbs, the aggregators too rework their business models and try to maximise their profitability,” said AD Singh, managing director of Olive Group, which runs marquee restaurant brands such as Olive Bar and Kitchen, SodaBottleOpenerWala and The Grammar Room.
Heavy discounting offered by the two leading food ordering platforms has been a bone of contention between them and the Rs 4.2 lakh-crore restaurant industry that is working under severe cost pressure since the coronavirus outbreak and the first lockdown in March 2020.
“Delivery has become the only mode of survival now,” said Sagar Daryani, chief executive of Wow! Momo. “Earlier the aggregators were pushing the habit creation of deliveries but now that the habit has been created, they too have realised that deep discounting is not the way forward.” Daryani is also vice president of restaurant association National Restaurant Association of India (NRAI).
The chief executive of a premium Delhi-based restaurant chain, however, said, “As and when the situation normalises and restaurants reopen, we expect the heavy discounts by aggregators to come back.”
An executive at Zomato, speaking on the condition of anonymity, said the current decline in discounting is cyclical after heavy Christmas and New Year discounts.
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Emails sent to spokespersons of Swiggy and Zomato remained unanswered.
The development comes amid mass shutdown of restaurants and pubs in some cities, particularly Delhi where the Delhi Disaster Management Authority (DDMA) on Monday ordered restaurants and bars to stop dine-in services, allowing only delivery services and takeaways. “The new guidelines, which prohibits dining completely and allows only deliveries, is completely unsustainable,” NRAI president Kabir Suri said.
Delhi NCR, according to NRAI estimates, is the second largest organised food service industry in the country. There are more than 95,000 organised and unorganised eateries in Delhi, it said.
This latest round of restrictions comes after months of shutdown during the first and second waves, followed by operations being allowed at 50% capacity.
Some industry executives pointed to rising raw material and fuel costs to justify higher prices. “Very steep inflation in costs of ingredients is also limiting restaurants and forcing them to cut down on discounts,” said Singh of Olive Group.
Also, starting January 1, the Centre has directed Swiggy and Zomato to collect and deposit tax at 5% rate to bring food vendors who are currently outside the goods and services tax (GST) threshold under the tax net.
India’s largest quick service restaurant chain Jubilant FoodWorks, which operates Domino’s pizza and Dunkin’ Donuts, recently increased prices by 5-6% across its portfolio. “Domino’s India remains focused on maintaining its value-for-money proposition,” the company had said. “We view the pricing action positively as it helps offset some margin pressure, with limited impact on demand.”
Costs of vegetables, edible oils and fuel have increased by up to 20% over the last year. Retail inflation hit a five-month high in December when consumer prices, led by food and manufactured items, rose 5.59% year on year and by 4.91% month-on-month, according to data by the Ministry of Statistics.
While dine-in business has taken a hit, sales through delivery have surged in large food services markets such as Maharashtra, Karnataka and Punjab.
Zomato and Swiggy reported record numbers of deliveries on New Year’s Eve. Zomato said it reached 2.5 million orders for the first time in one day, while Swiggy crossed 2 million orders.
Mid last year, NRAI had moved the Competition Commission of India (CCI), alleging that Swiggy and Zomato were forcing restaurant partners to give discounts on their platforms to maintain good visibility on the platform, among other allegations.