Food delivery startups have been all the rage, dominating food tech investment for the past 4 years. In what has become an extremely crowded industry, there are no signs that the market is shifting, with new entrants every now and then.
You can order a meal in less than three taps on your phone, delivered to your doorsteps, in about 30 minutes, at a cheaper price than you would pay in the restaurant. Online food delivery aggregators have added a level of convenience to ordering takeout that consumers are now addicted to. I appreciate the ease and convenience like anyone else, but at what cost?
I observed my family restaurant’s online delivery arm for a couple of weeks, and I couldn’t help but notice the deep discounts given by these online aggregators. At any given time, there will be at least 20 restaurants providing 50% off on delivery in your vicinity.
The discounts seem great at first, both for the restaurants (volume of order increases) and the consumers (who doesn’t like cheap food?), but the long-term effects are scary.
My initial reaction was the effect of discounts on brand loyalty. Consumers are ordering delivery not only because they are hungry, but because it is cheap, and always moving to the next best restaurant offering a discount. As soon as we removed the discount at one of our cloud kitchens, sales dropped by almost 40%.
I decided to dig deeper and turns out there’s much more at stake than I imagined. From deep discounting strategies, arbitrary terms and conditions to customer data sharing, there’s a lot of issues in this industry.
Let’s discuss some of these:
Would you like a discount on that?
If you’ve signed up for any of the food delivery apps, you’ll notice how the app is infested with offers. Sign up to their mailing list and you’ll get a new offer every day. Discounts entice users to order even if they aren’t hungry. Cravings take over and convenience makes it even easier.
Take me for example, I tracked my orders for this year and while living alone Melbourne, I ordered food a mere 5 times in 8 months, that too because Uber Eats gave me 50% off on all orders. Generally, there is a $5 delivery fee and the online menu was a bit expensive than dine-in. Which makes sense, if you want to be lazy and just use your thumbprint, you’re going to pay more for it.
But that’s not the case in India. I ordered in a whopping 27 times in the last 30 days, averaging 40% on all orders. That’s a big jump.
Five years into the food delivery boom, many restaurants gained from the extra visibility and raked in profits, but in the long term, they end up losing more than they gain. This steep discounting game has started to hurt margins.
A few months ago, the National Restaurant Association of India (NRAI) even started a #logout campaign, intending to stop “unethical” deep discounting practices of online food aggregators. The NRAI told the platforms to “realign their offerings to create a restaurant-friendly ecosystem, thus ending freebies and detox the consumers from discount addiction.”
Costs of Convenience
In the long term, discounts not only hurt the restaurants, but also the consumers.
We get addicted fast. Especially to technology. It’s hard to imagine transportation without Uber and entertainment without Netflix.
In a thought-provoking article called “The Danger of Convenience,” David Cain argues that the more advanced technology becomes, the more absurd how it’s used, making possible “new levels of sedentariness and tech dependency.” Take voice-controlled Google Home, for example, which will now start playing your favorite show when you ask it to, without having to get off the couch to find the remote.
“The food industry has developed to the point where we are completely disconnected from the source of our ingredients and don’t even need to cook if we don’t feel like it. We can have hot food delivered to our door or reheat in a microwave by pressing a few buttons. It’s convenient, sure, but is it benefiting us, physically and mentally? It is rather crazy, when you stop to think about it, that the most basic of human survival skills — making food — has become foreign to many modern humans.”
Katherine Martinko
And then comes instant gratification. After a few fast deliveries, one loses his mind if the order is delayed. We want everything fast, and our patience level goes down.
No technology is perfect and it’s basically humans running the show (delivery drivers and the restaurant staff), and they’re bound to make mistakes. Sometimes, a restaurant might mess up your order, or a driver might get delayed because of bad weather.
Last week, my order screen displayed 42 minutes for delivery and it took the driver 1hr 30 mins to reach me. I later found out that he did 2 more deliveries before mine, thus, the delay.
Generally speaking, humans are not in the best mood when they are hungry. Sprinkle a dash of frustration on that, and you have the perfect recipe for angry calls and messages to the support team and the drivers.
Empty Restaurants
Discounted in-home deliveries are cannibalizing dine-in occasions.
In my experience, 2 years ago, Sunday afternoons were always buzzing with at least a 30 min wait at popular restaurants. Now, footfall has decreased greatly.
Even though there’s less footfall, the number of orders remains the same or continues to grow owing to food delivery. But usually, a surge in the volume of orders does not translate to a similar hike in revenues as these orders have a no minimum cap. An order could be as low as ₹99 and paying anywhere 15–25% commission on such a small amount is a drain on a restaurant’s margin.
The third-party delivery apps have unlimited pools of cash and they are willing to burn it for the sake of customer acquisition. They’re raking in profits from the commissions and eventually coming up with new features/subscription as alternative revenue streams (Swiggy Super, Zomato Gold).
You can’t have your data
We all know, data is key. A restaurant planning to make changes to its menu, deciding on production quantities or opening a new outlet could use its customer’s insights to make informed decisions.
In a recent article I read, a New Delhi based restaurateur mentioned that some large platforms don’t share data on who the customers are.
Now, I’m not aware of the data and privacy policies in this industry so I won’t comment on that, but it’s unclear how these delivery companies are using the information. They have access to consumer dining habits and search history in every location, which they can use to build their own products, and they are already doing that.
Swiggy and Zomato have already launched their private label delivery-only kitchens, thus competing with their partners (restaurants).
“There are other concerns about customer data — some restaurant owners that Mint spoke to claimed that some large aggregators refuse to share data on who their customers are. This, they added, is helping the aggregator build a vast database of consumers’ dining habits and even help expand their own business in what can be seen as a conflict of interest by restaurants. “They are shutting us off from our customers… that’s how loyalty is built,”
New Delhi-based restaurateur Thomas Fenn who runs Mahabelly
Cloud Kitchens and other issues
The growth of cloud kitchens (also known as dark kitchen/delivery only) has also made it easier to scale up. The setup and operational costs involved are low, and the major expenses such as marketing, discoverability, and delivery are being borne by the platforms.
But again, this makes restaurants increasingly dependent on these online aggregator platforms.
“While wider audience reach and last-mile fulfilment are great, the cloud kitchen suffers from having no meaningful customer interactions and this impacts customer retention in cloud kitchens. Cloud kitchens are unable to use their brand and vision to build a loyal customer base, despite being a popular option for new-age customers in India.”
Sandeep Singh
Think that’s it? There are plenty more going wrong in this industry, such as:
- High and uneven commission charges
- Arbitrary terms and conditions
- Manipulating data and search algorithms
- High plastic usage in packaging
- Poor working conditions for delivery drivers
To keep this article short, I’m not going in-depth on the above issues, but feel free to dive deeper and share your thoughts in the comments below.
Wrapping Up
I like to be hopeful about the future, and as a whole, it’s not all bad in the food delivery market. These online apps have revolutionized the industry and helped small restaurants scale up their operations. It has also created thousands of direct and indirect jobs and made food accessible to all.
Currently, online ordering and deliveries form about 40–50% of restaurants’ revenues and are likely to go up to 70% over the next 3 years, believes industry experts.
While the growth is good, the authorities need to regulate the power online aggregators have, for restaurants to step up and reduce their dependency on these internet applications, and for the consumers, to think, how convenient do we want things to be, really?
Thanks for reading.
Do you order online? Let me know if you have any thoughts on this article in the comments below.
Got to go, my delivery is here!
