In recent years, online delivery platforms have emerged as transformative forces within the restaurant industry, reshaping how food is ordered and delivered. However, alongside these advancements, concerns have been raised by the National Restaurant Association of India (NRAI) regarding the practices of leading players like Zomato and Swiggy, citing issues such as customer data masking and high commission rates, sparking discussions on fairness and sustainability. Rakesh Ranjan, CEO, Food Delivery, Zomato shared his insights with businessline during the India Restaurant Summit 2024 in Chennai, addressing the current challenges and the path ahead. Here are edited excerpts from that conversation.
Online delivery platforms have significantly transformed the restaurant industry, but the restaurant industry has raised concerns about the practices of top players. How would you address these concerns?
This is indeed a fair question, and I want to address it directly without being overly euphemistic. There are two perspectives on commissions: one sees it as an unavoidable expense, while the other asks, “How can I lower my cost of doing business?” These approaches are fundamentally different. For instance, our platform spends hundreds of crores annually on customer refunds. This is not just a cost issue; it’s also a matter of revenue leakage. If a customer has a bad experience, the restaurant loses that customer. That’s why we’ve made certain data available to help restaurants manage these challenges.
Restaurants should also look for ways to reduce operational costs for the aggregators they partner with. Aggregators are already spending significant sums on refunds. Can restaurants improve their back-end processes, packaging and front-end operations to lower these costs? If operational costs decrease, we would be happy to pass those savings along. But for now, someone in the ecosystem has to absorb these costs, and that’s the reality.
What effective solutions do you propose to ensure fairness for both restaurants and delivery platforms?
It’s essential to break the perception of an “iron curtain” between aggregators and restaurants. When this divide exists, it unfortunately places customers on the opposite side. We need to stop viewing data as an adversary. While restaurants have to manage physical spaces, they can still optimise costs in less visible areas. For example, acquiring new customers is always more expensive than retaining existing ones. We must recognise that technology, delivery, customer service and market creation involve costs. Instead of seeing these as barriers, restaurants should focus on addressing their specific challenges — such as reducing customer refunds, increasing repeat business, improving margins per order and raising the average order value. A shift in this mindset can fundamentally change the conversation. For example, using a service like HyperPure allows restaurants to order packaging in smaller quantities, freeing up valuable kitchen space. However, many still prefer traditional methods. We can continue to fight against this so-called invisible cost demon, but the truth is, that “demon” has also created opportunities. So, there are opportunities for restaurants to think differently about costs and revenues, and in doing so, improve their margins. It’s time to embrace them.
Can you provide specific examples of how restaurants can optimise their operations?
Until we stop viewing technology as a threat and begin engaging in meaningful dialogue, progress will remain limited. I encourage restaurants to approach their account managers with questions like, “I want to sell the same products, but can we optimise distribution? How can I adjust my menu to improve performance?” These are the types of questions that savvy restaurateurs ask, and they are seeing great success. Many restaurants have successfully lowered their operational costs, even while working with aggregators. Why? Because they’ve embraced innovation. They analyse data to determine which menu items attract new customers and focus on improving margins per order. For example, roti is a high-margin item, accounting for 18-20 per cent of sales at North Indian restaurants offline, but only single digits online. This discrepancy arises because breads don’t travel well for delivery, yet many restaurants continue packing rotis in aluminium foil without addressing this issue. Also, many restaurants run marketing campaigns without measuring their effectiveness. For instance, I’ve seen restaurants launch campaigns on Facebook without understanding their return on investment. The solution isn’t to cut digital marketing spending to zero; rather, it’s about understanding where the money is going and optimising those efforts.
What steps has Zomato taken to foster trust and support for restaurants?
We are committed to making more data accessible to restaurants. We’re democratising that information and providing it at the touch of a button, empowering them to make better decisions. While there’s still much work to be done, we’ve already made significant strides in this direction.
What are your thoughts on Swiggy’s IPO?
When we came out with an IPO, it created quite an impact on the restaurant industry. It made the industry more attractive to investors, who started realising that there’s a lot of money to be made in this business. We received a lot of positive feedback, with people saying that our public listing was a great move for the industry. Swiggy’s IPO is also a validation of the market. Fierce competition from companies like Swiggy keeps us on our toes. When companies go public, numbers become more transparent, which pushes us to innovate more rather than just compete on pricing. Ultimately, innovation drives market expansion, so Swiggy’s IPO will not only benefit the industry but also motivate us to improve. Competition in any sector fosters innovation and overall growth.