News & Analysis

Zomato Under Fire from Restaurants

The restaurants are refusing to accept yet another hike in commissions saying they're already facing profitability pressures and sluggish demand

Restaurant owners are up in arms against food delivery company Zomato who have sought an increase in commissions ranging from 2% to 6%, ostensibly to cut their mounting losses. And their logic is quite simple. Charging 25% to 30% of a bill is itself quite high and to add more to this would only drive people off, as is evident from dropping delivery numbers. 

The company reported a net loss of Rs.348 crore for October-December quarter, which was wider than then Rs.63.2 crore recorded a year earlier, though its revenues grew a whopping 75% during that period to Rs.1948 crore. “When they’re adding to their toplines, why are they expecting more from us,” asked the owner of a popular Bengaluru restaurant. 

Why fleece us for your largesse: Restaurants

In fact, the restaurant owners are unanimous in their opposition to this demand claiming that already food orders are dropping post the pandemic while footfalls are increasing. In such a scenario, why should we pay for a service that is not our first priority, they ask, adding that if they’re making so much money, why aren’t Swiggy and Zomato making profits? 

According to a report published by ET, National Restaurant Association of India president Kabir Suri reiterated that they plan to take it up with Zomato soon. Another restaurant owner in the national capital said they’ve been threatened with delisting and with reducing the delivery radius by Zomato, in case they did not adhere to new commission rates.  

Zomato losses are on the upswing

The company had also shut down operations in 225 smaller cities, which they claimed, accounted for 0.3% of the orders with not very encouraging growth. “The current slowdown in demand was unexpected, which is impacting the growth in food delivery profits,” the company said in its Q3 report. 

Some of the restaurant owners we spoke to claimed that Zomato just wanted parity with Swiggy which charges about 30% as commission. One company that operates a biryani chain in the city said they already had a special rate card on these food delivery apps and if commissions grow further it will disturb our unit economics drastically. 

Is Zomato playing a divide and rule game?

While speaking to restaurant owners, it also came to light that Zomato hadn’t sought the hike in commissions across the entire spectrum. They have approached only select restaurant chains in some big cities, which they feel, could be one way to keep the entire story developing into one where food delivery itself gets questioned as a business model. 

With the return of dine-out and travel post the pandemic period, food delivery itself has slowed down in the big cities, which is said to drive the maximum demand on these platforms. Restaurant owners have repeatedly alleged that aggregators give deep discounts to expand their customer base while making the core restaurant business unsustainable. 

The other charges that have been leveled include uneven commissions being charged from different restaurants and the masking of data. The Restaurant Owners have filed a complaint with the Competition Commission of India around these matters.

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