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Zomato Pay and Swiggy Diner are dangerous for dine-in industry, NRAI warns restaurants

The National Restaurant Association of India issued an advisory to its member restaurants warning them about Swiggy Diner and Zomato Pay

The National Restaurant Association of India (NRAI) on September 2 issued an advisory to its member restaurants warning them about adopting Swiggy Diner and Zomato Pay, the dine-in payment options offered by the two food delivery companies. Currently, both platforms are piloting these payment options in Hyderabad, LiveMint reported.

“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. […] It is therefore critical that every restaurant operator understands these programs well, inspect the terms and conditions thoroughly and then make an informed decision on their participation in these programs.” — NRAI

Why does this matter: While this is being called an “advisory,” it’s nothing but a veiled attempt by NRAI to discourage restaurants from adopting Zomato Pay and Swiggy Diner, which the influential restaurant body believes to be harmful to the entire industry. “The decision you make today as restaurateurs will have a long-term impact on the economics of the entire sector, we hope that your final choice reflects this,” NRAI cautioned at the end of the advisory.

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What is NRAI: NRAI claims to represent over 5 lakh restaurants across India and it has been at the forefront of the battle between restaurants and online food delivery platforms. In April this year, the Competition Commission of India (CCI) launched an investigation into Zomato and Swiggy based on a complaint filed by NRAI in July 2021 alleging anticompetitive practices like bundling of services, data masking, exorbitant commissions, deep discounting, and violation of platform neutrality.

MediaNama reached out to Swiggy and Zomato for a comment. While Swiggy refused to comment, a Zomato spokesperson responded stating: “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 in the industry.”

What is Zomato Pay and Swiggy Diner and how does it work?

Both Zomato Pay and Swiggy Diner are payment gateways that restaurants can offer to their dine-in customers in addition to existing methods like cash, card, and UPI. Dine-in customers choosing Zomato Pay or Swiggy Diner will be able to pay for their meal using the Zomato and Swiggy apps respectively.

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Zomato and Swiggy are incentivising their customers to use their payment options by offering discounts, cash backs and bank offers. This, in turn, is also being used to urge partner restaurants to adopt the payment gateways “under the unsubstantiated promise of more footfalls,” NRAI explains.

Importantly, the two payment gateways allow Zomato and Swiggy to earn a commission on dining transactions. “This is a big deal because both have reached peaks in terms of how much they can charge for delivery orders (currently in the range of 25-30%) – making efforts to widen the pie the only way forward,” NRAI remarked.

According to NRAI, both Zomato Pay and Swiggy Diner operate broadly on the following construct:

  1. No cost to the customer to pay using these options.
  2. Restaurants must compulsorily offer a discount ranging from 15-40 percent to be part of the program. This discount must be offered to anyone who wishes to pay with Zomato Pay or Swiggy Diner irrespective of the fact of whether the customer discovered the restaurant on Zomato or Swiggy or just walked in on his own.
  3. Restaurants must also pay a commission in the range of 4-12 percent on every transaction made via the respective payment gateway to Zomato or Swiggy.
  4. Weekly payouts to restaurants.

What will be the impact on various stakeholders?

According to NRAI, the impact of restaurants offering Swiggy Diner and Zomato Pay payment is as follows:

On restaurants: 

  • High commissions: Restaurants have to pay Zomato and Swiggy a commission of 4 to 12 percent, which could increase as soon as more people adopt Zomato or Swiggy’s payment gateways, NRAI claimed. NRAI called this “bizarre” given that there are several alternative payment gateway options available for restaurants that charge a lower commission of around 1 to 1.5 percent.
  • Cost of discounts: Restaurants will now have to compulsorily offer discounts that are borne entirely by them. “The fundamental question here is why should a restaurant pay a commission to a middle man to offer a discount to its own customer,” NRAI asked. “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/Swiggy from increasing their discount requirements as well as per-transaction commissions once that happens. They are currently funding the cash-backs to the customers, but that too can easily change,” NRAI added.
  • Data will be with platforms: “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,” NRAI argued. When it comes to food delivery, NRAI as argued in its complaint with CCI that Zomato and Swiggy collect data on customers and food sales and use that to build their own private brands that sell food from cloud kitchens at a lower cost, all while denying restaurants right to this data, which might help them improve their service.
  • Unilateral terms: As more and more people change their payment habits because of discounts and cashback, Zomato and Swiggy’s terms of engagement with restaurants will change “unilaterally and irreversibly just as their behaviour in the delivery market will testify,” NRAI remarked.
  • Claim over customers: “‘Your’ customers will eventually firmly become ‘their’ customers,” NRAI stated.

“The middlemen wins once again, albeit at your cost!” — NRAI to restaurants

On Swiggy and Zomato: 

  • Gives them a foothold in dine-in: “They will get a firm foothold in the dine-in business, after squeezing the last drop of revenue from the delivery business,” NRAI remarked.
  • Can charge higher fees in the future: Restaurants foot the exorbitant costs of discounts and high commissions, while Zomato and Swiggy capture customer base. “Claims will then emerge that they are directing ‘their’ customers to ‘your restaurant’ to justify a heftier fee,” NRAI remarked.

On customers: 

  • Cheaper dine-in: It will make dine-in cheaper for them because of the discounts and cash backs. “It is a deal too good to refuse,” NRAI commented.

Flashback to Zomato Gold

NRAI’s advisory also briefly reminds restaurants of the Zomato Gold program, which launched in November 2017 and was eventually shut down due to unfavourable terms for restaurants.

Zomato Gold was a dine-in program that customers could participate in by paying an annual subscription fee. In return, customers could avail lucrative discounts at restaurants like “1+1 on Food or 2+2 on Alcohol.” It was meant for “premium” customers and was supposed to help restaurants by bringing in these “premium” customers who would spend a lot at the restaurants. “All of this however, played out very differently on the ground. This ‘premium’ program was sold to millions of people eventually! This led to the unprecedented #Logout movement on August 15, 2019 during which thousands of restaurants all over country decided that they had enough of this no-win proposition. This eventually led to the death of Zomato Gold,” NRAI explained.

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