CASE STUDY: OFFLINE PRICE PARITY ISSUE IN CHENNAI Kausik, City Business Head for Chennai, while driving back home was reflecting on his day at office, He was called in by Adwaith, Cluster Head for Tamil Nadu, to discuss the effects of offline price parity on the brand image of Swiggy. During the discussion, it was established that there are set of large key accounts in Chennai which run higher prices on Swiggy vs their offline item prices. Kausik, was given a I-month window by Adwaith to build a strategy to control the offline parity issue, Another meeting was scheduled in one week to discuss the ideas with their pros and cons Later in the evening, Kausik called Anbu, City Growth Manager for Chennai, to schedule a meeting with various stakeholders the next day. Food Industry Overview India is a developing country and in the recent years it has developed a lot with the growing industrialization and significant increase in the disposable income. Currently, the market of online food in India is at its nascent stage with the effective introduction of numerous applications which can be used by the smart phones with a simple installation. The word food-tech in India has evolved over the years, Adequate funding and investments in this market space have empowered companies to serve online facilities that have never been seen before. ‘Some of the major key players which are recently functioning in this market, are focusing on better consumer satisfaction and accomplishing the growing demand for food on the online food delivery apps. Some of the key players include Bundl Technologies Private Limited (Swigey), Zomato Media Private Limited, Food Panda, UberEats and several others. (Refer Appendix A) In addition, the attractiveness of online food delivery facility can be recognized to the several benefits it serves, likewise food delivered to the doorstep of the consumer, numerous payment options, attractive discounts, cashback offers and rewards. Reputed restaurants and cafes also find it beneficial and profitable to sell their food with the online platform since it decreases a significant amount of operational overheads, With the effectiveness and applications of this market, the new entrants are willing to invest in this for making the profit which proved to be beneficial for both the consumer and the investors Therefore, in the coming years, it is expected that the market of India online food delivery will grow more actively in the near future with the significant development and investment, (Refer Appendix B) Company Over wi Tralll started back in 2014 when two BITS Pilani graduates, Sriharsha Majety and Nandan Reddy decided they wanted to make life easier by changing the way India eats - all with just a tap! With their idea of *hyperlocal food delivery’, all they needed was the tech to power it and were introduced to Rahul Jaimini, who brought this vision to life with the first website. And with this Swigay was launched as a food ordering & delivery platform In August of 2014, Swiggy began operations by signing up a few restaurants in Koramanga Bengaluru, Soon enough, the first team of Hunger Saviours came into action to deliver food with 40 minutes, Shortly after, Swiggy raised its first round of funding and launched the app in May of 2015. (Refer Appendix C)With love and support from consumers, Swiggy expanded far and wide, first through the entire city of Bengaluru and then across the entire country. As they say, the rest is history. (Refer Appendix D) Today, Swiggy is the leading food ordering and delivery platform in India, The innovative technology, large and nimble delivery service, and exceptional consumer focus at Swiggy enabled a host of benefits that includes lightning fast deliveries, live order tracking and no restrictions on order amount, all while having the pleasure of enjoying your favorite meal wherever you'd like it. Swiggy is valued at $3.3 Bn (Dec 2018) and expects fast paced growth in 2019 as well. Swigyy has quickly diversified into various other businesses like Swiggy Stores, Swigey Go, Swiggy ‘Access and has also acquired related startups like Scootsy and Supr Daily. it also launched loyalty- based program Swiggy Super. It is now testing waters to scale up these businesses across the country using its core competence: delivery fleet! Problem at Han With the advent of online food delivery companies, the restaurant partner had to share his profit with the food tech companies like Swiggy. Chennai charges 18-20% commission depending on the partner, The restaurant partner realizes potential in the online marketplace but does not want to let go of his profit share. This gives rise to price disparity. Two types of parity exist in the market: Online Price Parity Online price parity simply means restaurant partners charging same prices on Swigey as well as all the other online food delivery platforms (Zomato, UberEats, Food Panda etc.). A disparity rises when there is a difference in price charged by a restaurant partner on Swigey compared to an other online delivery platform, Item level prices, GST charged or packaging charges; if any one of them is charged less on any other platform, it is a concern for Swigay. Customers are very price sensitive and check various platforms before placing an order. If any customer encounters prices charged on Swiggy are higher than any one of the other online platforms, we are sure to lose that customer and we are ourselves building a negative brand image in his mind. The Vendor Management (VM) team ensures that online price parity is maintained by keeping a routine check. ‘The central team shares disparity issues in a sheet with the city VM teams and respective restaurant POCs take the concern forward with the partners, Warning e-mails are sent to the restaurant to revise prices on Swiggy and if they don’t take the necessary actions in the given time, they are delisted by an average of 50 listings. Offline Price Parity The offline price parity compares prices on Swiggy with the restaurant’s dine in menu. This is a very important concern because loyal customers to a particular restaurant remember the dine in price and directly compare it with the prices displayed on Swiggy. The restaurant partners hike prices on all online platforms to compensate for the commissions that they share with these online players. Sometimes they also hike price to compensate for the Trade Discounts (TDs) that they offer to the consumer, The end result is that the customer pays the same amount even after receiving a TD from the restaurant since the prices are hiked in a compensatory manner. In most of the cases, online parity is achieved but an offline parity is not, This means restaurant partners hike prices by the same amount on all online delivery platforms. This still results in a negative brand image of Swiggy in the minds of the consumers as they perceive Swiggy as theculprit behind charging higher prices. It has also resulted in social media escalations wherein the negative sentiments of customers come out in public. At the same time, it is very difficult to track offline parity since the bandwidth required is very high Swiggy introduced a new concept of Self-Serve available in the restaurant partner application which allows them to change prices or update menu on their own. Earlier, they had to request a change in menu to the concerned POC from the VM team. The TAT (turnaround time) here was 7-8 days which resulted in poor restaurant NPS. Hence, the concept of Self-Serve was introduced to reduce the TAT to § hours. This can also encourage restaurant partners to hike prices without informing the VM POC. If it decides to curb Is it really important for Swiggy to inyest in the issue of offline pa this menace of offline parity, what steps should it take? The Meeti: ‘As directed by Kausik, Anbu arranged for a meeting with key stakeholders involved in the price parity issue. People from Supply, Vendor Management and Marketing took part in the meetin: (Refer Appendix E) Kausik acted as a moderator to guide discussion to arrive at key insights. The following were the noteworthy points of the discussion Denzil, ASM: “Profit sharing model is not widely accepted by restaurants. They have been accustomed to a certain pie in the profits and they do not feel comfortable when the pie is reduced. Hence, the most preferable model is to hike prices so that their share remains constant Sunder, ASM:" Zomato wants to reduce their TAT always: ‘They do not want to waste time in convincing restaurants to maintain price parity. Convincing restaurants takes two to three meetings which increases the TAT to make a restaurant live. Zomato encourages price disparity and hence the partners expect us also to allow them the same.” Srecia, SM: “While we source TDs, restaurants believe they cannot survive on the online platform because of discounting. To accommodate discounts on Swiggy, they hike prices so that their margins do not reduce by much.” Naresh, KAM: “More than 50% of our accounts follow offline disparity. Accounts having AOV less than 160-170 i.e, the small accounts/non branded chains are the ones who «lo not follow price parity as people are unaware of their brand anyway. Price on Swiggy will be higher than their offline menu. On the other hand, chain outlets generally do not indulge in a direct price disparity. They have a separate online delivery menu displayed at their outlet which tells the consumers that prices on online platforms are different. Syed, AVM: “L believe online parity will be a concern for Swiggy as prices on Zomato and Swiggy will be different and it will hamper the brand image of Swiggy. Social media escalations have ‘occurred in the past but most of the times people compare prices across online platforms and not offline prices (Refer Appendix F). Offline parity is inevitable in our business. In order to sustain in the market and having key restaurants on-boarded we have to accommodate it, Ifprices are same‘on online platforms, the brand image of Swiggy is not much affected and it’s the restaurant who suffers a negative feedback” Varun, VM: “We always try 1 explain them that if parity is not present, you will lose your loyal customers and it will affect the repeat purchase rate. Not only online, but also your offline walk in business will suffer, Your revenues will fall down, We also warn them that your listing will suffer as we do not entertain price disparity. But in the end, these are key accounts and many of them are select accounts too. We cannot delist them as it will affect our revenue too. They are AB or WX accounts for us (Categorization of restaurants)” Kausik now intervened after noting all the insights and asked everyone if they feel we should take actions in this issue or let it continue as it is? What are the trade-offs that we are making? If we want to implement some different solution, how should we go about it? Anbu and Prem intervened straightaway saying we should not focus much on solv parity issue and should run the business as it is going on. They supported the argument by showing the consumer NPS data (Refer Appendix G). Chennai’s NPS was much better than the national average. This clearly indicated that consumers in Chennai are not affected much and offline disparity is also not an issue. + Denzil and Sunder supported this argument by bringing in the social media escalations. Chennai faced no more that $-7 social media escalations in the past 6 months; all of which were due to online parity issue. They believed such outliers are inevitable in any business and is not a major concern for the company. + Syed mentioned the point of increasing bandwidth if the company wants to ensure offline price parity. Currently, each SM or VM handles 160-170 outlets respectively. They are responsible for account management, upselling, sourcing Ads, sourcing TDs and menu updates. It is beyond the bandwidth of these people to also monitor the offline price parity also. Hiring new employees for this project will be a trade off with unit economics for the company. * Varun also continued speaking in the favour of not executing the plan because of the concept of Self-Serve. It allowed the partners to change prices directly from their application. Earlier, any change in menu was supposed to be routed through the VM POC and then went to the digitizing team. But the digitizing team charged INR 50 for every menu update, which was proving to be costly for the company. Hence, the concept of Self- Serve was introduced to reduce this cost. But this has also allowed the partners to change prices at their whims and fancies. He suggested to have one approval level from the VM team whenever the restaurant changes price or updates menu. This will allow the VM team to have one level of conversation if the restaurant tries to indulge in offline disparity. # Suddenly Janani intervened the conversation and proposed that the company can still manage to improve offline parity without investing much in bandwidth. She suggested to bring in the concept of “MPG” (Minimum Price Guarantee), All the restaurants following price parity will be given an MPG seal displayed on their listing by Swiggy. This will increase customer trust on that restaurant and may increase the repeat rate for those restaurants. The sales team can pitch this saying even if their profits may decrease, but increase in OPD (Orders per Day) will compensate for the lost money After collecting insights and suggestions, Kausik decided to dismiss the meeting. He headed straight to his desk and started thinking on his presentation that he had to make for Adwaith in one week,The Dilemma While recollecting the suge following three options sstions and insights shared in the discussion, Kausik was left with the # To continue the business operations as they are currently running. A project on offline price parity will not have a significant impact on the brand image of Swiggy. Will continuing it the same way not have a significant impact considering Swiggy will expand in Tier 3 and 4 cities soon? Should Swiggy only focus on online parity? If yes, what are the projects that can be undertaken for the same, * To hire a new team to monitor the project on offline parity. It will have a big impact on the city P&L and Unit Economics, which is one of the primary KRA (Key Responsibility Areas) for Kausik. Should the trade-off of hiring a team be made over his primary KRA? * Launch the MGP project in zones which have the maximum presence of key accounts with highest offline disparity, Analyze the results and then decide to scale up in the entire city Your team is hired as interns in Kausik’s team and have been assigned to the project of offline parity. Analyze the situation and help Kausik decide if Swiggy should draft a strategy for offline parity issue in Chennai? If yes craft a short term and long-term strategy for the same.Appendix Appendiv A: Market Players ORDERS IN DEC 2018 2 ball orders = Monthy orders eonear a Geenears FOODPANDA Source: Times of India Appendix B: Online Food Delivery Industry Overview: FOOD TECHNOLOGY ONLINE GROWTH IN THE SECTOR IN INDIA MARKET OF FOOD DELIVERY ee) T[M Moy) 7QOO; 2021 MILLION ‘quarter on quarter in terms of daily wa 2018 Source: Innov8,Appendix C: About Swiggy Swiggy FOUNDERS ‘5 e! REDDY & RAHUL JAINA FOUNDED 3.Sen08 2014) § CATEGORY-FOODTECH JF 5p ngwLoans SaTEsony Fooorec IF app Dov 50K+ TmtioN- CITIES SERVED “ams 7) Forse cs aT IS Source: Entrepreneur.comAppendix D: Swiggy Growth 3500 2015 Orders Per Day Bonen 1,00,000 2016 2017 2018 Source: The HinduAppendix E: Organization Hierarchy rl [at wi Wd teAppendix F: Social Media Escalation thelet na nght re screenshots te menu fhe sre recat cn Zomato& Uber ave a ood delvryappsinstalled so that wecan compare whee stings and husnesmades Hooddelnery #mebleapp *consmerbehaiot sconsumerbehoviourAppendix G: NPS Score 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% -15.0% NPS Score Compari. sion oo , TO Jan-19 Feb-19 Mar-19 Chennai NPS —®=Delhi NPS @—Bangalore NPS Hyderabad NPS Apr-19 © Mumbai NPS May-19 Source: PowerBI