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Be wary of Zomato, Swiggy dine-in schemes, restaurant body NRAI tells members, Retail News, ET Retail

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The National Restaurant Association of India (NRAI) issued an advisory warning its members on Friday, asking them to exercise caution and good judgement before choosing to participate in food delivery firms’ newly introduced dine-in programmes. It said the programmes offered no tangible value to restaurants, would not solve any problems for the industry, and would benefit food delivery firms at the cost of restaurants.

After “squeezing the last drop of revenue from the delivery business”, Swiggy and Zomato want to get a “firm foothold” in the dine-in business, the NRAI said.

Both food delivery majors are piloting dine-in programmes – Zomato Pay and Swiggy Diner – in Hyderabad. In May, Swiggy entered into a definitive agreement with Times Internet to acquire restaurant tech and dining out platform Dineout for $120 million in an all-stock deal. In 2014, Dineout was acquired by Times Internet, the digital media arm of Bennett, Coleman and Company Ltd (Times Group), which publishes ET.

“Swiggy has entered the market through the acquisition of Dineout and Zomato has reformatted Zomato Gold to what it is today (Zomato Pro). We discussed our concerns with both platforms and have had constant engagement on the matter. They have taken note of what we have said. But ultimately, we say something, and they believe something [else]. The facts will speak for themselves – the number of people that will log in and the number of people that will refrain will tell you where they stand,” Kabir Suri, president of NRAI, told ET.

Swiggy did not immediately respond to ET’s queries. Zomato said in a statement: “With our new dining product, now live in Hyderabad for a few weeks with great results, we are confident that we will create tremendous value and growth for the industry. We are looking forward to working with progressive restaurants who see the bigger picture.”

NRAI said in its note that both dine-in programmes had more or less the same construct. Restaurants must offer a compulsory 15-40% discount – entirely borne by them – to participate, and must also pay a compulsory 4-12% commission on every transaction made through Zomato or Swiggy, it said.

“The false narrative within the delivery business of ‘discounts’ as the only means to grow your business will also find its way into the dine-in business. There is absolutely nothing stopping Zomato and Swiggy increasing their discount requirements and per-transaction commissions once that happens. They are currently funding the cashbacks to customers, but that too can easily change,” NRAI said in the note.

The association said it was bizarre that restaurants had to pay a 4-12% commission – which could increase – for permitting the use of Zomato’s and Swiggy’s payment gateways at their places of business despite the availability of cheaper options. “The fundamental question here is why should a restaurant pay a commission to a middleman to offer a discount to its own customer?” it said.

Suri said it was NRAI’s responsibility to inform its members about these terms, but it was ultimately up to them to do what they thought was best.

“Based on how this played out with the delivery market, what is perhaps most dangerous is the long-term, irreversible effects that this has on the dine-in market: unsustainable discounts coupled with a platform wedged firmly between you and your customer,” NRAI added
in its note.

CCI probe
In April, India’s anti-monopoly watchdog ordered a probe into Zomato and Swiggy for allegedly unfair pricing practices and other issues flagged last year in a complaint by the restaurant association.

“The matter is subjudice because the probe is on. They are collecting data and we are awaiting their report,” said Suri, adding that the dine-in products are not a direct part of the CCI probe.

“However, elements within any programme, indirectly or directly, are covered. We have the ability to always go to the Competition Commission of India if we have an issue right and as a complainant,” he said.

NRAI had complained to CCI that Swiggy and Zomato were indulging in deep discounting and data masking, charged exorbitant commissions, and imposed price-parity terms on restaurants.

In its note on Friday NRAI said “after being denied ownership of essential data of restaurant’s delivery customers, this will now open the flood gates for middlemen to colonise dine-in data.”

“As more and more people change their payment habits, lured by discounts and cashbacks, their terms of engagement with restaurants will change unilaterally and irreversibly, just as their behaviour in the delivery market testifies,” NRAI noted.

Zomato’s dine-in controversies
Zomato’s membership programme has been mired in controversy ever since it was launched in 2017 as Zomato Gold. NRAI protested against this and in August 2019, 300 restaurants under the association launched a ‘logout’ campaign, de-listing themselves from the platform in protest. Later, when Zomato tweaked its offers under the Gold membership to assuage restaurants, its customers protested, feeling undercut.

Zomato scrapped the “Gold” brand and launched Zomato Pro, which focused on discounts on both dining out and delivery. In May, the company paused new user sign-ups and renewals for its Pro and Pro Plus, saying it was revamping the programmes.

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