Food aggregators must put staff on top of menu 

Suresh Srinivasan | Updated on: Aug 18, 2022
An emotional connect with employees is key to food aggregators’ business model

An emotional connect with employees is key to food aggregators’ business model | Photo Credit: MURALI KUMAR K

Satisfying customers and employees go hand-in-hand. Food aggregators need to emotionally connect with their delivery partners

As the economy rebounds after multiple lockdowns, a fierce battle is brewing between online food aggregator platforms.

Both Zomato and Swiggy are deep into losses. Is the current business model of the online food aggregators sustainable in the longer run? Will they ever make profits? While their demand and top-line are growing, the challenge relates to costs, profit margins, sustainability and viability of operations in the longer term.

The fundamental problem for their recurring losses is that, although the market does provide head-room to grow in the medium to long term, aggregators are currently operating ‘sub-scale’. This means their costs as a percentage of revenues, as it stands today, are disproportionately high. Costs are primarily driven by ‘food delivery patterns’ which show intra-day ‘peaks and troughs’, being lunch and dinner times vs the rest of the day, resulting in sub-optimal utilisation of their delivery partners during troughs.

As the number of orders and order size improve in future, aggregators expect better utilisation of delivery partners and profitability. If this was the only problem, then the profitability could emerge over time; but two other bigger issues are of a concern.

Two issues

First, some unsatisfied restaurant partners believe they are pushed to the brink with higher levels of commissions payable to aggregators who allegedly employ anti-competitive practices masking customer data, demand for discounting and delayed cash settlement.

The case filed by the National Restaurant Association of India (NRAI) against aggregators and being investigated by the competition commission, reflects such dissatisfaction. Restaurants, in response, are also strengthening their online platforms providing faster and fresher deliveries, disintermediating the aggregator partnering with technology solution providers.

Second, and the bigger, challenge is the engagement of delivery partners, who form the backbone of aggregators’ operations. In recent months, delivery partner payouts and terms have reportedly been tightened sharply reducing their net earnings.

Further, in spite of spending close to 12 hours on road to clock meaningful earnings, stringent penalty clauses in case of delays or failure to deliver, superior customer rating requirement that is linked to allocating delivery rides to partners that eventually impact their minimum required deliveries for the day and stringent requirements for being physically present that are closely monitored digitally have reportedly increased their hardships. The recent hike in fuel cost, which the delivery partners absorb, has further created frustration.

The online aggregator platforms and their business-model clearly have a problem. There seems to be excessive focus on technology, but lack of focus on people, relationships and the emotional connect with delivery partners. These issues impact their engagement with the company and customers; their priority to satisfy investors, and also squeeze two other key stakeholders — restaurant and delivery partners.

Emotional disconnect

How can a company that does not emotionally engage with its delivery partners, expect to provide a delightful experience to its customers? There is a big disconnect here.

Further, these aggregators are pushing to enter adjacencies in order to improve the utilisation of their delivery partners; Swiggy has already entered the hyperlocal grocery delivery through Instamart and Zomato via its recently acquired Blinkit. These may be good for optimising delivery partner utilisation and profitability, but will aggravate the delivery partner ‘burnout’ further impacting the sustainability of the business model.

What is required is not a mere tweaking of the business model that is excessively focussed on cost optimisation; but models that integrate the high value creation for delivery and restaurant partners, which in parallel, delight customers.

How can aggregators give more to restaurant partners, higher compensation to delivery partners and still make profits through targeting customers who are ready to pay more?

Highly customer focussed ‘experience-providing’ companies like Starbucks had built their foundations strongly by engaging and delighting their ‘employees’; Starbucks was the first company in the late eighties to provide full medical benefits even to part-time employees, unheard of in US corporate history till then.

The writing on the wall is clear; ‘customer delight’ is a myth without employee engagement and ‘employee delight’, especially in service industries where companies are striving to generate a ‘magical’ customer experience.

In spite of higher costs, Starbucks clocked profits as customers were willing to pay more for their coffee, and the unmatched experience generated by happy and emotionally engaged employees.

Although one can argue that online food ordering may not be as niche a business as the ‘premium’ coffee business, customers in India will be willing to pay more for a more customised experience leveraging emotionally connected delivery partners.

Dedicated delivery partners who understand their customers’ food ordering habits, health issues and diet patterns can generate superior experience enhancing the customers’ willingness to pay.

If customers are served fresh food from restaurant partners who also are well incentivised and are emotionally engaged with the aggregator; such models could be a win-win for all the three stakeholders resulting in sustainable operations.

Recent rulings of Dutch and British courts have ordered classification of drivers in the cab aggregating platforms like Uber as employees and not as ‘contract workers’. Although California courts have taken an alternative view, the voice is becoming louder and if formalised, can impact food aggregator business.

The Finance Minister announced in this year’s Budget that contract workers would come under state insurance scheme and minimum wages will apply.

Online food aggregators need to realise that technology is undoubtedly important, but the human element, the empathy and going beyond the regulations to engage with delivery partners is a must. Both Swiggy and Zomato are realising this and have of late started moving in this direction.

Measures announced include a two-day leave for women delivery partners, life accident and health insurance coverage, access to on-call doctors, agreements with restaurants and petrol pumps for the delivery partners to use their toilets. These measures need to cover a larger proportion in order to make a mark on the employee motivation and engagement. Such an approach will demand dedicating large resources, time, energy and costs and eventually could impact the margins and valuations.

However, there does not seem to be a way to escape this.

The writer is Distinguished Professor (Strategy & Accounting), Great Lakes Institute of Management

Published on August 18, 2022
COMMENTS
This article is closed for comments.
Please Email the Editor

You May Also Like

Recommended for you