Beyond aggregation

The ongoing dispute between Zomato and restaurants can have widespread ramifications. In the past few years, the food service aggregator has pioneered the disruption of the traditional hospitality model, and has gained Unicorn status by running its online food delivery services across multiple locations in 25 countries. Apart from deliveries, Zomato also offers ratings and user-generated reviews for its partner-establishments. But its latest move has run into resistance from restaurants, with more than 1,200 of them in India logging out of the aggregator’s discount programme, Zomato Gold. The move has been backed by the food and hospitality industry associations. In addition, many people in the hospitality industry have expressed dismay about the allegedly opaque nature of Zomato’s ratings and reviews. 

Zomato and its rivals such as Swiggy and Uber Eats have disrupted the hospitality industry, which lacked the logistical base or technological skills to address the demands of relatively affluent consumers who do not have the time to dine out. By taking their orders and delivering, Zomato and its peers created a win-win situation: Restaurants could cater for larger numbers while consumers got both the food and convenience they desire.

Efficiently performing this apparently simple task requires plenty of technological nous. Restaurants must be aggregated and sorted on the basis of multiple criteria, such as cuisine, price range, locations, and ratings. The logistics of pickup and delivery must be optimised so that most orders can be serviced in the least possible time by the least possible staff. Vast databases of customers have to be maintained with sensitive information such as contact numbers, email ids, physical addresses, credit card details, and fintech account details. The aggregator must securely process transactions on sundry online platforms, and accept cash on delivery with its inherent risks, and maintain payment schedules with its partner-establishments.

By doing this, Zomato and its peers have created new paradigms and enabled the hospitality industry to service a larger base. But the new model has also given the aggregators unprecedented leverage in dealing with restaurants. The aggregators can demand discounts, including the in-restaurant discounts that sparked this particular confrontation. They impose stringent time limits and penalise partners for overstepping set times. The aggregators collect and disburse all the payments. It has been alleged that they sometimes delay payments, causing a working capital crunch. Ratings and reviews are important because consumer choices are driven by these. These are generated and displayed, using algorithms that the hospitality industry claims to be opaque. One specific complaint is that the ratings appear to favour old establishments with established brands over newcomers. 

Zomato has, like any disruptor, made its share of false steps and suffered its share of controversy. Breaches of its databases have put the data of millions of consumers at risk. It has had to face political issues around the religious sensibilities of its delivery personnel and consumers. Zomato Gold also may have been a major miscalculation because so many restaurants claim that it is unprofitable. In a broader sense, such frictions are inevitable when disruptions break down an established business model. Zomato’s founder and Chief Executive Officer, Deepinder Goyal, has taken to Twitter, requesting restaurant owners to stop the logout campaign and urging them to initiate a dialogue with aggregators. The restaurant-partners should reciprocate because negotiating an equitable solution is in the interests of both.

Business Standard is now on Telegram.
For insightful reports and views on business, markets, politics and other issues, subscribe to our official Telegram channel