Catalyst

Stewing in the discount trap

Chitra Narayanan | Updated on August 23, 2019 Published on August 23, 2019

Table of discontent When profits get gobbled by discounts   -  torwai

Zomato vs restaurateurs face-off highlights the bitter side of seemingly sweet schemes

Rupinder Kaur is very miffed. The Delhi-based sales professional, who looks forward to dining out at new places every weekend with family and friends, asks indignantly, “Why is there such a hue and cry over Zomato’s schemes? Every other industry offers deep discounts?” She says, without these incentives, her family may stop dining out so often.

Kaur is just one among the million Zomato Gold subscribers totally addicted to the aggregator’s sweet “one plus one” offers that now have the whole restaurant industry stewing angrily. In an unprecedented move that went viral in just four days, starting August 15, over 2,000 restaurants logged out of Zomato and other aggregators’ discounted dine-in schemes.

Meet Amit Tripathi, a digital marketer turned food entrepreneur who runs PizzAah! District, a chain of pizza retail outlets in Mumbai, and among those who logged out of Zomato Gold. “When it started, Zomato Gold was a brilliant thought as it made restaurants discoverable by premium customers,” he says. It helped in customer acquisition for establishments like his. But, by opening memberships to literally everyone and not having checks and balances to prevent gaming of the system, it has now become a diluted, blackmailing platform, he rues. (Savvy customers had begun hopping restaurants taking one plus one drinks and starters at one joint, moving to another and getting one plus one main course at another. Or three Zomato Gold members would unlock offers at one table claiming multiple discounts.)

Advantage, aggregator

Tripathi describes how a slowdown as well as GST-impacted industry has found itself deeply hurting through these deep discounting practices as well as being forced to advertise on aggregator platforms. “Commercially, we found that 50 per cent of the sales generated by Zomato was going back to the aggregator,” he says. “We may have created this monster ourselves,” he admits.

Ankit Mehrotra, CEO and founder of Dine-Out, a restaurant table reservation platform, which runs the Gourmet Passport scheme, is sympathetic to restaurateurs. With rentals soaring, raw material and labour costs rising, he says he understands their discontent over discounts. Also, “without restaurants we cannot exist.” He is one among six aggregators who met apex restaurant association body NRAI (National Restaurants Association of India) over the last few days to work out a solution and he is amenable to working on tech tools to prevent gaming of the system. In any case, he says, Gourmet Passport members can get only three coupons per restaurant in a year.

Eazy Diner, another reservation platform that has a Premium programme whereby 25 per cent discounts are offered, also insists it does not hurt restaurants as it does not do walk-ins, only advance reservations.

By all accounts, Zomato is the villain of the aggregator piece and being even termed a diabolical corporation. Industry people talk about how restaurants in one area were coerced to become partners as they were told next-door outlets had got into the platform and footfalls were being diverted there.

For his part, Zomato CEO Deepinder Goyal did appear sympathetic to restaurants’ pain, and also admitted that bargain hunters were taking over but seemed inclined to protect customer’s experience more. His mail to restaurant partners, to serve a 45-day notice before logging out and then asking them to pay a sign-up fee to return, angered them further. Even the subsequent changes in the Gold programme, including preventing gaming by giving only one unlock of one plus one per customer per day, restricting number of unlocks at a table to two members and raising membership fee from ₹999 to ₹1,800 is seen by NRAI as just a minor tweak that won’t solve the discount-addiction problem. The restaurateurs want to weed out this addiction altogether.

Aggregators or marketplaces and services have always been at loggerheads. Be it airlines and hotels versus OTAs, cab aggregators versus drivers, this is an inevitable turn. However, in the other industries, resolution has been easy because demand outstripped supply. Here, the pain point for restaurateurs is that a diner who does not like the prices or service will simply walk across to another place. According to an industry person, there are at least 5,00,000 restaurant joints (and this is a conservative figure) across the country

Possible solutions

Some solutions are to cap discounts at 15 per cent. Others are to cut the volumes of membership. Interestingly, DineOut’s Ankit Mehrotra is piloting a differential pricing tool for its restaurant partners on the lines of surge pricing in cabs whereby, when demand is high, as during weekends, the outlets can hike prices of certain dishes or alcohol. Though F&B consultant and former NRAI president Samir Kuckreja is sceptical about the success of this scheme, given the competitive pressures that restaurants face, Mehrotra says the pilot results at places like Pind Baluchi have been encouraging.

If you look at the whole aggregator vs service providers battle, even as hotels are still locked in a fight with OTAs, the movie industry and airline industry are not at loggerheads. That’s because customers are happy to pay convenience fees to the aggregators for superior service and a great user experience. Could it work with restaurants? “Unlikely. Customers have got used to discounts,” says Tripathi.

Kuckreja says NRAI has been lobbying with the government to regulate the aggregators. “We are advocating that the aggregators must be classified as an e-commerce marketplace. If they are classified as this, then they come under rules,” he says. But that will easily take a year. Meanwhile, in the short term, the restaurants want a solution from the aggregators. Discussions are on; let’s wait and see what they plate up. One thing is for sure — the days of foodies dining out on deep discounts are short-lived.

Published on August 23, 2019
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