Strategy of Zomato has bought the Restaurant owners to their knees
Zomato and Swiggy dominate the fast-growing market in India with a combined share of 95%. Zomato charges a commission to the restaurants on the basis of orders. The company earns through restaurants who pay a commission for each delivery, which is then spilt among the delivery partners and the company.
They went public claiming to be worth 12 billion dollars and now the Institutional investors and FPI's have almost exited, with the retail investor buying the boom. The NRAI went to the CCI in April this year and an investigation has begun.
There is an order to investigate the firms has come months after the National Restaurant Association of India (NRAI) filed a complaint. The NRAI, which represents more than 500,000 restaurants across India, had asked the CCI to investigate the two companies for allegedly providing priority to some eateries.
The Gurgaon-based company also expanded to 180 new cities, taking its presence in India to more than 700 cities. Zomato reiterated its focus on the quick-commerce segment and added that it will invest an additional $400 million in the space in the next two years.
They started off as a directory service for restaurants and listed them. Then they started reviewing them. They slowly ventured into table reservations and asked for a little commission. Zomato is in discussions with multiple restaurant partners and cloud kitchen companies to launch ultra-fast delivery, five people directly aware of the talks said.
The restaurants loved it. Zomato was a friend. They then came up with a loyalty scheme with the world's oldest plan that says "buy one and get one free". The restaurants loved it even more. Zomato was their best friend.
They decided to advertise these restaurants on their portals and charged huge fees by pitching one restaurant over the others. They started delivering food and charged a 30% commission without telling you who the customer was.
Zomato now held 30% equity in your restaurant. They now came up with the concept of "deep discounting" and stripped you to the bone. You thought you had no choice.
Now, they started their own cloud kitchens, gave them preferential listing and rating and sold the same menu items at cheaper prices. Yes, they not only stepped on your toes, but actually trampled you.
They pay delivery partners 15 rupees instead of 30 rupees. They are still valued at 6.7 billion dollars. They've not made a single rupee of profit. Swiggy, backed by SoftBank, raised $700m in funding earlier this year, doubling its valuation to $10.7bn. Zomato, which went public last year, attracted bids worth $46.3bn and it was more than 38 times oversubscribed.
The CCI said the firms' agreements with restaurants could create "entry barriers for new platforms, without accruing any benefit to the consumers". Expert says, the learning curve is if you feel hungry, reach for a cutting board and a pan, not the phone.
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