Zomato and Swiggy have begun renegotiating exclusivity contracts with a slew of restaurants citing a downward impact on business due to the ongoing pandemic, said multiple people aware of the move. This could further exacerbate strained relations between the food delivery platforms and restaurants.
Evoking the force majeure clause that frees both parties from liability when an extraordinary event occurs, Zomato and Swiggy are redrawing exclusivity and minimum guarantee clauses in their contracts with local restaurants as well as national chains, the people cited above said.
“With some of the top cities being closed for more than two months (leading to) multiple operational challenges and order volumes touching an all-time low, honouring these agreements is unviable,” said a venture investor aware of the developments.
Mohit Sardana, COO-Food Delivery, Zomato, confirmed the development. “Yes, we are revisiting our exclusivity contracts with a few restaurants. These are unprecedented times for the industry, and we are more than willing to support our partners’ evolution and adjustments to the new realities.”
Swiggy did not reply to email queries from ET until press time.
Stung by the move, several of the country’s top restaurant chains including Olive Group’s Fatty Bao, SodaBottleOpenerWala, and MonkeyBar, Mukesh Bansal backed Eat.Fit and regional chains like A2B, Truffles, Pista House, Crepe-fe, and Gupta Teas have decided to either walk out of negotiations or not renew contracts with the food delivery apps, the people said.
“In these times, there is a lot of uncertainty among customers. The pattern of online ordering is hugely influenced by the comfort a particular brand has built with its consumers in the past. Therefore, the Olive group of restaurants wants to be available to all customers and not restrict ourselves to any one aggregator,” said Chetan Rampal, Partner Olive Group of Restaurants.
Typically for Ant Financial-backed Zomato and Swiggy, which counts South Africa‘s Naspers as its biggest investor, these exclusive tieups with restaurants accounted for about 30% of overall sales last year. But these deals also sharply drove up costs, second only to direct discounts, top executives at these firms told ET.
While each contract was negotiated with different terms, it could range from a flat onboarding one-time payment, monthly assured payments, lower commissions, and higher visibility on the app for the restaurants.
Direct orders
To be sure, the National Restaurant Association of India (NRAI) has been urging members to adopt technology solutions and accept orders directly from consumers. Restaurants are now looking to use WhatsApp, Instagram or take direct calls instead of relying on food delivery platforms that mask customer details and charge a commission for the transaction.
“Even after opening up all platforms and own distribution channels, sales are not touching pre-Covid-19 numbers,” said a top executive at a cloud kitchen chain, which now lists on both platforms. “Commissions have now increased, minimum guarantees from marketplaces are out, and ad real-estate in-app is no longer discounted,” he said.
ET reported earlier that, four out of every 10 restaurants will likely be permanently shuttered in the absence of a government bailout and the broader impact will be even more severe in an industry that had a turnover of about Rs 4 lakh crore and provided direct employment to over 7 million before the lockdown.
Although exclusivity tieups were touted as the modus operandi to differentiate one food delivery platform from another, several national chains including Dominos, McDonald’s, Faasos, Behrouz, Pizza Hut and FreshMenu, which command customer loyalty, have always steered clear from such alignment to marketplaces.
“Current circumstances have made it imperative for restaurants to have visibility across as many platforms as possible to get maximum orders…for survival restaurants cannot be exclusive with any single platform,” said Karan Tanna, who runs New York Waffles, Starboy Pizza, and Hakka Makka brands.
On recovery path
In the last two weeks, food delivery apps have seen their order volumes recover by about 35% compared to pre-Covid-19 levels as more restaurants resume delivery. A clutch of high-end restaurants and hotels including ITC, Ritz-Carlton, The Table, Masque, Bombay Canteen, and JW Marriott have also begun listing on these platforms.
“In addition to the existing partners, Swiggy onboarded hundreds of new restaurants that were heavily focused on dine-in and previously not available for online delivery,” said Vivek Sunder, COO, Swiggy. These tie-ups along with the pull-back on discounts have also pushed up per-order value by 55%.
Zomato said more than 50% of its restaurant partners are back on the platform. “We have witnessed a strong recovery in the last two weeks since Lockdown 4.0. Now with Unlock 1.0 and restaurants opening up from 8th June, we anticipate the business to recover further in the coming weeks,” Sardana said.
In the first phase of the lockdown, order volumes fell from close to 2.5 million orders per day to less than 300,000, analysts told ET at the time. Currently, the restaurant supply has been limited to anywhere between 25% and 40% of what it was pre-Covid-19, with the supply being higher in tier-1 cities, Swiggy said.
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