India’s booming dining apps are facing a crisis as thousands of restaurants abandon them en masse, fed up with bearing the costs of an “epidemic” of discounts as the platforms battle for market share.
Companies such as Zomato, EazyDiner and Gourmet Passport have attracted millions of mobile-savvy Indians who use their services to find restaurants and order their food.
This has whet the appetite of foreign investors, with Zomato valued at more than $3bn after investments from Alibaba and Sequoia Capital. “Foodtech” in India has grown into an estimated $5bn industry from just $120m in 2015, according to consultancy Redseer.
But the industry’s business model is under threat, after India’s restaurant association started encouraging members to boycott platforms that offer heavily subsidised meals to diners.
More than 2,000 restaurants have quit the apps since the campaign was launched this month, according to the National Restaurant Association of India, amid complaints that they have been forced to shoulder the cost of discounts as high as 50 per cent.
“Deep discounting is an epidemic. It’s spoiling the party,” said Rahul Singh, founder of Indian pub chain The Beer Café and president of the association. “We’re creating discount addicts.”
The campaign has so far centred on dining platforms but one person familiar with the discussions said the restaurants planned to target online delivery companies next. This could include popular services such as Naspers-backed Swiggy and Uber Eats.
Rohan Agarwal, a manager at Redseer, said restaurants that partner with online aggregators for a year typically enjoy annual growth in the number of bills of 25-30 per cent. But restaurants complain that they lose money because of the discounts they are required to shoulder.
Mr Agarwal expects the backlash to force the online companies to reconsider the way they negotiate with restaurants as they expand their services.
“This is the first consolidated pushback from the restaurant side so far, in an industry where otherwise the aggregators were trying to push for the terms,” he said. “They will have a significant voice and role to play going forward.”
India’s restaurant industry is relatively undeveloped compared with that of neighbouring China, where per capita income is about twice as high. While India has an estimated 500,000 restaurants, Chinese delivery company Meituan-Dianping has more than 5m restaurant listings alone.
After meeting the association, Zomato last week proposed changes to limit abuse of the deals it offers, such as only allowing diners to use its deals at one restaurant per day and limiting the number of deals to two per table.
“We have made mistakes and things haven’t gone as planned,” said Deepinder Goyal, Zomato’s founder. “This is a wake-up call.”
However, the restaurant association said it would not accept Zomato’s offer, dismissing it as “another attempt to stuff old wine in a new bottle”.