Thousands of Bengaluru restaurants plan to stop accepting orders from Swiggy and Zomato starting August 15 over high commission and discount disputes. This standoff highlights growing friction between food delivery platforms and partner restaurants regarding profit margins. Investors should track whether ongoing negotiations prevent the strike or lead to changes in commission models.
Thousands of restaurants in Bengaluru have warned they will stop taking orders from food delivery platforms Swiggy and Zomato beginning August 15. The Bruhat Bengaluru Hotels Association is leading the protest, citing concerns over high commission rates, mandatory participation in discount programs, and payment cycles. The association argues that current platform policies make it difficult for restaurants to maintain healthy profit margins.
Impact on Business Economics
For many restaurants, the cost of doing business through delivery apps has become a significant financial burden. Restaurant owners frequently report that to cover the commissions and service fees charged by platforms, they must raise prices on delivery apps compared to dine-in menu rates. According to S. Subramanya Holla of the Bruhat Bengaluru Hotels Association, a restaurant may need to set a delivery price significantly higher than an in-house price to ensure the same take-home revenue. The association has expressed frustration over platforms applying discounts to their food items without explicit permission, which they claim further reduces their earnings.
Status of Negotiations
The association has indicated that while the boycott is planned for August 15, they are open to discussions with the delivery companies. Representatives from Zomato have reportedly met with the association to discuss these concerns, with a commitment to explore potential resolutions within a two-week timeframe. Swiggy has not yet entered into similar formal talks with the restaurant group. The success of these discussions will determine whether the boycott proceeds as planned.
Competitive Landscape and Entry Barriers
This conflict highlights the struggle of restaurants to regain control over their business economics in a market dominated by a few players. While the food delivery sector has seen limited competition, new platforms are starting to appear. Options such as Ownly, supported by Rapido, and interest from other large players like Flipkart have introduced more choices for restaurant owners. However, analysts note that the duopoly of Swiggy and Zomato remains strong due to their vast delivery networks and existing customer base.
Industry experts point out that building a rival delivery infrastructure is capital-intensive. Estimates suggest that a new entrant would likely need to invest around ₹2,000 crore just to capture a small portion of the market, such as 5%. Because of these high barriers to entry, experts suggest that an immediate threat to the dominant market share of Swiggy and Zomato is unlikely. The primary issue for investors to track remains the outcome of the current negotiations, which could set a precedent for how commission structures are handled in other major Indian cities if similar unrest spreads.