Restaurants Turn The Heat On Swiggy, Zomato.

But Taking On The Delivery

Giants Won’t Be A Cakewalk.
Synopsis
The love-hate relationship between food-delivery platforms and restaurants is getting more
complicated as more eateries are opting for direct delivery. Swiggy and Zomato still want to woo
them. But a large section of restaurateurs is opposed to the overarching presence of the big boys
of food delivery and are trying to fight them with differential pricing.

A food order that I received recently through Swiggy came with an interesting pamphlet tucked
inside the bag. The restaurant, which had just delivered through Swiggy, was offering a discount
to consumers if they ordered directly from the outlet. This restaurant is not an exception. In
Bengaluru’s busy Majestic area, a south-Indian eatery often switches off the Swiggy
and Zomato apps during peak hours and fulfils orders through Dunzo since it is cheaper for
customers and the restaurant.

For example, a restaurant that charges INR100 for an item would price the same at around
INR130 or more on Swiggy or Zomato to cover the commissions paid to such platforms. For
direct orders, many restaurants charge a lower price. And with the Swiggy-Zomato duopoly
imposing its own terms, several restaurants are gravitating towards direct orders. The ‘Order
Direct’ campaign launched by restaurants last year has been gaining momentum with more and
more eateries reducing dependency on the two food-delivery giants. “Many restaurants, mainly
the big brands, have started moving towards direct orders,” an industry participant tells ET
Prime.
But can restaurants break the dominance of Swiggy and Zomato through direct orders or by
choosing other delivery partners?

Breaking a duopoly
For food chains such as Wow! Momo, direct orders, a negligible business until a year ago, now
account for up to 15% of total delivery volumes, up from 10% three months ago. For Mumbai-
based deGustibus Hospitality, direct orders now constitute over 20% of overall delivery volumes.
In the NCR, The Big Chill Cafe manages 100% of its deliveries directly through its 13 outlets.

“We had held discussions with Zomato and Swiggy but decided not to list on the platforms due
to two reasons. The overall costs, including commissions and charges for better visibility on the
apps, came to about 40% of the sale, which we could not afford. Second, both platforms refused
to share customer data with us, and that was a deal-breaker,” says Aseem Grover, co-owner of
The Big Chill Cafe. Many restaurants are fulfilling orders through the likes of Dunzo,
LoadShare, Delhivery, and Shadowfax in multiple cities for last-mile deliveries, either through
logistics aggregators or directly.

However, according to industry observers, direct orders are only 7%-8% of the overall delivery
volumes. “We are still largely dependent on Swiggy and Zomato for online food ordering,” says
1
a Delhi-based restaurateur. The dominance of Swiggy and Zomato has been a matter of debate
between the platforms and restaurants though the two parties depend on each other for growing
their revenues. While the online food-delivery industry has been commonly considered a
duopoly of Swiggy and Zomato, both have often contested that.

In its red-herring prospectus, Zomato had said it competes with “other food-delivery companies
such as Swiggy and chain restaurants that have their own online-ordering platforms such as Pizza
Hut, McDonalds and Dominos, and cloud kitchens like Rebel Foods and other restaurants that
own and operate their own delivery fleets and companies that provide point-of-sale solutions and
restaurant-delivery services”.

Zomato added that it also competes with traditional offline-ordering channels such as take-out
offerings, telephone-based ordering, and paper menus that restaurants distribute to customers as
well as advertising that restaurants place in local publications and digital media to attract
customers. “Further, we also face competition from mobile-payment applications that facilitate
food ordering. Our food-delivery operations could also compete with hyperlocal logistics
operators that can be availed of by restaurant partners,” Zomato had said.

This point came to a head in a recent case that the National Restaurant Association of India
(NRAI) had filed against Swiggy and Zomato with the Competition Commission of India (CCI),
alleging anti-competitive practices.In its petition filed last year, NRAI proposed to define the
relevant market for Swiggy and Zomato as a ‘restaurant marketplace with delivery services in
various hyperlocal areas across India’ and claimed that both players had considerable market
power.

Zomato and Swiggy, however, disagreed proposing a wider definition. While Swiggy proposed
the relevant market as ‘a market for provision of listing and logistics services for cooked food’,
Zomato suggested that the relevant market should include all logistic-delivery companies such as

2
DotPe , Dunzo, Shadowfax, Delhivery, WeFast , Pidge, etc., direct ordering to the restaurants, as
well as the entry of players such as Amazon and Google. Amazon started piloting food
delivery in Bengaluru two years ago, but the company is still to scale the business beyond a few
pockets in the city. Meanwhile, Google has backed Dunzo and DotPe.

The CCI, while stating that there was “no need to go into precise relevant market delineation”,
added that Zomato and Swiggy are “prominent online food-delivery platforms and operate as
online intermediaries for food ordering and delivery”.

So, are the likes of Dunzo and Shadowfax a serious competition to Swiggy and Zomato as
claimed by the latter? Not entirely.Swiggy and Zomato themselves often rope in services of
many of these logistics players to fulfil orders, especially during peak hours and in towns where
their delivery network is not strong. Swiggy also recently invested in mobility platform Rapido
to utilise the latter’s bike-taxi rider base.In a way, Zomato and Swiggy are limiting the scope for
these logistics players to have an independent share of the food-delivery pie by bundling their
delivery services with restaurants.

In fact, in their petition restaurants had asked CCI to direct Swiggy and Zomato to stop bundling
delivery services with the listing services, stating that both players were forcing restaurants that
wanted to list on their platform to also use their delivery services. Such bundling, they claim, is
anti-competitive. “It also creates an impediment to innovation and improvement in distribution
of food, which could also be done by hyperlocal delivery entities, and not allowing the same is to
the detriment of restaurant partners and end-consumers alike,” NRAI said.

CCI, however, said that integrated service of food ordering and delivery, when opted for by
consumers, is in alignment with user interest and does not raise any concern over
competition.CCI added that the bundling of delivery services enables the platforms to control the
time taken for delivery and qualitatively standardise such delivery for the end consumer.
Interestingly, Zomato told CCI it had piloted an integration system for a self-delivery programme
to assist restaurants desiring to offer self-delivery and that it may roll it out pan India.

In a statement to ET Prime, Zomato said that the self-delivery option was now open to all
restaurants that meet a certain criteria. “We had launched a pilot to enable self-delivery by
restaurant partners in various cities across the country. Restaurant partners with the requisite
technological and logistical abilities to undertake deliveries themselves in an effective manner
can undertake delivery of orders if they so choose,” it said. Zomato had also told CCI (as part of
the NRAI case) that it had released a white-label app to enable restaurants in self-deliveries, but
it was rolled back as it did not show satisfactory results. Swiggy had also begun piloting a direct
ordering feature with some restaurants in Mumbai last year. But it has not been scaled, according
to industry sources. "We are still largely dependent on Swiggy and Zomato for online food
ordering."
— A Delhi-based restaurateur
3
Challenge from competition
While Zomato and Swiggy are looking to offer the self-delivery option, restaurants have decided
to get the orders delivered directly. For this, they are tying up with several new platforms.
Google-backed DotPe has been frequently touted as a challenger to Swiggy-Zomato duopoly in
the food-delivery industry. Interestingly, DotPe also counts Naspers (through Payu) and
InfoEdge, which are big backers of Swiggy and Zomato, respectively, among its investors.

DotPe has partnered with several restaurants and cloud kitchens which look to get business
directly from customers. It helps restaurants set up an online presence, offer chatbots on
platforms such as WhatsApp, digitise payments, and aggregate logistics partners and overall
order management. It counts the likes of Social, Smoke House Deli, and The Big Chill Cafe as
customers.
There is also Jubilant Foodworks-backed Thrive Now, which charges restaurants 3%
commission to enable direct ordering as compared to Swiggy and Zomato’s 25%-30%
commission on the order value.

The growth, however, has been slow. Thrive has partnered with 11,000 restaurants, with the
count increasing 12% month-on-month. Of these, 60% are monthly active. The daily gross
merchandise value (GMV) is between INR12 lakh-INR16 lakh, which is growing at around 5%
every month.
In other words, even as multiple channels and players vie for different segments of the food-
delivery business, Swiggy and Zomato continue to be the big boys of the game.

In FY22, Swiggy had more than 195,000 active restaurants on its platform (up 110% from the
pre-Covid-19 levels), its investor Prosus Ventures said recently in a filing. The company also
works with 300,000 delivery partners.Zomato said during its March quarter results that average
monthly active restaurant partners and delivery partners were at an all-time high at 200,000 and
316,000, respectively.

4
The price wars
Besides direct deliveries, restaurants are now using their pricing power to counter the Swiggy-
Zomato duopoly. Like the Bengaluru-based restaurant cited earlier, several eateries are offering
discounts on direct orders. Recently, a LinkedIn post about a big mark-up on prices by a
restaurant on Zomato compared to its offline outlet created a buzz.

According to industry insiders, for restaurants that don’t want to anger the mighty duo by
offering a lower price for direct orders, there is something called the ‘Swiggy/ Zomato quantity’,
which refers to reduced grammage or weight of an item packed for delivery through aggregator
platforms.
This is because the price variation often violates the price-parity clause that Swiggy and Zomato
have in place with restaurants. In fact, in the CCI petition, restaurants claimed the platforms had
imposed wide price-parity restrictions to stop them from charging lower prices on their own
websites, offline, or on any other channel.

Zomato said that restaurants “only need to maintain parity against prices offered through its
restaurant locations or other direct channels” but added that it “does not enforce price-parity
clauses” and that several restaurant partners offer better deals on their own websites and direct
channels as well as on third-party platforms. Swiggy claimed that restaurants only have to

5
provide a competitive ‘list price’ of products as offered on other platforms and they are free to
offer discounts and schemes on other channels.

Industry sources say Swiggy enforces the price-parity clause more strictly. It uses web crawlers
and other tools to track such variations and sends out alerts to restaurants if there is a price
variation. Swiggy penalises such cases by pushing down the restaurant’s listing on its platform or
by delisting them. Now, the CCI has prima facie found a case for antitrust investigation on the
matter, stating that price-parity clauses are likely to have an appreciable adverse effect on the
market. The CCI has begun investigating Swiggy and Zomato on these alleged price-parity
clauses and has sought clarity from both platforms as well as restaurants. Additionally, it is also
investigating whether Swiggy and Zomato gave preferential treatment to their private labels and
cloud-kitchen brands.
The bottom line
Given the size of Swiggy and Zomato’s delivery networks, many restaurants are still dependent
on these platforms to earn revenues. This assumes more significance in the context of the fact
that online food delivery, though a small share of the overall food and beverages industry, is
expected to grow much faster than the dine-in segment. Many restaurants also prefer Swiggy and
Zomato over direct ordering, given the discovery and huge customer base they offer. Zomato, for
instance, had 15.7 million monthly transacting customers in the last quarter, though the base has
plateaued over recent quarters. “We are happy working with them (Zomato and Swiggy) and
don’t intend to start direct ordering,” says Arpit Kapoor, co-owner of Kapoor’s Cafe chain of
restaurants.

Meanwhile, there have been allegations that some restaurants are violating clauses signed with
Zomato and Swiggy by switching off their apps during the peak hours and offering discounts for
direct orders. “That is not in good spirit,” says another restaurateur. The fight for a pie of the
burgeoning food-delivery business is clearly heating up. Can restaurants show their might

6
through direct orders and bigger discounts? Or will Swiggy and Zomato continue to be the most
popular choice for food delivery?That’s for the customer to decide.

ET Prime: 19th July,2022