Profit squeeze drives Indian restaurants to seek new delivery paths

Deep discounts demanded by these platforms are creating an unsustainable business model for restaurants, which are exploring partnerships with mobility firms like Rapido to deliver food and even contemplating legal action against Swiggy and Zomato.

“We want access to our consumer database. Restaurateurs realise that our marketing costs are really going through the roof in online ordering and it's a double-whammy as online ordering is also increasing as a pie of the entire orders served because ordering-in is now competing with dining-in footfalls," Sagar Daryani, president, National Restaurant Association of India (NRAI), told Mint on the sidelines of an industry event in Delhi on Wednesday.

Frustrated by an unsustainable online delivery model driven by deal-seeking Gen Z customers, the restaurant industry is warning of declining quality and potential closures unless the financial dynamics shift, and is prepared to pursue legal action against Swiggy and Zomato should the ongoing negotiations fail.

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Mobility companies like Rapido have reached out to the association to help grow food delivery networks across major cities.

This will be part of NRAI's endeavor to help restaurants find alternatives where a lower commission will be being charged compared to the two big players, Daryani said.

Citing internal data, Daryani said food deliveries are expected to grow, led by demand from Gen Z consumers. “75% of the orders that come online are Gen Z consumers who are also deal seekers and tend to opt for cheaper options. They will be our largest audience for the next 20-25 years," he said.

India’s food services market, valued at $80 billion in 2024, is set to grow at a CAGR of 10-11% through 2030. In the same period, the online food delivery market is expected to grow from $9.1 billion to $23 billion by 2030, per estimates by consulting firm RedSeer.

Daryani said that the industry body is engaging with the two 'cloud landlords', but as an industry, restaurants are burning money in deliveries due to escalating commissions and an increasing number of offers coming through online platforms.

He added that restaurants across the board are paying the same amount of commissions regardless of the distance they’re sending their deliveries to.

Currently, the food delivery market is dominated by Swiggy and Zomato. Delivery platform fees can range between 5% and 20% for restaurants, depending on the size of the order.

In January, the industry rose against entities like Blinkit Bistro and Swiggy Bolt, the 10-minute ready-to-eat food delivery services, citing concerns of increased competition as the two players offer their own private labels. The NRAI has opposed Zomato and Swiggy's entry into private labeling and quick commerce food delivery through their own platforms like Zomato's Blinkit Bistro and Swiggy Snacc. Restaurants see this as direct competition on the very platforms they depend on for business, creating an uneven playing field and potential misuse of restaurant data.

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Daryani said the association will engage with the the food delivery platforms to lower commission rates and address other concerns, but if it doesn't lead to a solution, then the association will be compelled to take legal recourse.

The issue, he said, has become more prevalent in markets like Gurugram and Bengaluru where snack ordering is generally quite high.

Restaurateurs in these markets are finding it difficult to cope with the deals that these two companies are offering, as they are quite cost-effective for consumers, putting many of these businesses at risk. “Some restaurateurs feel they will be compelled to reduce the quality of their products or shut shop in case they’re not able to compete with the margins and dark patterns of these delivery platforms. It is affecting deliveries with restaurants affected in Hyderabad, Pune, Bengaluru and Gurugram," he said.

Service charge

Meanwhile, the restaurant association has also challenged the Delhi high court’s recent order concerning removal of service charge—the court now prohibits restaurants from automatically adding a service charge option to the final bill.

The association is likely to be heard by the court on 9 May.

Earlier this month, Mint reported that dropping the service charge is not likely to impact the consumer bill in any way as many restaurants have found a workaround and increased their menu prices to incorporate the removal of the 10% optional service charge that was being levied on consumers.

Restaurants owners have dubbed the move as detrimental to consumers in general.

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"Restaurants can easily take ₹100 dish and make it ₹110; we can pay our staff but consumers lose out on the option of not having to pay service charge in case they do not wish to. Earlier consumers could have removed the service charge if they were not happy. While as businesses we have to follow the law, customer options have been removed. We see this ruling as anti-consumer," said Zorawar Kalra, vice-president, NRAI, and founder and managing director, Massive Restaurants Pvt. Ltd.