Restaurateurs in food tech hotspot Bengaluru red-flag Swiggy

In the first week of October last year, top restaurant owners were invited over a WhatsApp group to a hush-hush meeting in Jayanagar, an upscale neighbourhood in Bengaluru.

The idea was to discuss an eight-point agenda, in which the key issue was that of “high commissions” being charged by food ordering and delivery platforms like Swiggy and cloud kitchens set up by these companies.

Over a dozen angsty restaurant owners turned up with similar concerns: the commissions charged by online platform Swiggy has been increasing over last two years. And they felt that Swiggy was favouring its own kitchen on the platform.

“The commission of 30% is killing us and they are not ready to come down,” said a restaurant owner who mainly sells biryani and south Indian dishes from a few outlets across Bengaluru. Typically, Swiggy’s commissions range anywhere between 15%- 30%.

Swiggy denies indulging in unfair trade practices saying its commissions are a function of the value delivered to restaurateurs. More on that later.

While the biryani restaurateur admits that being on Swiggy has worked out well for him, he’s worried that Swiggy’s own cloud kitchen called The Bowl Company, will end up cannibalising his sales. The Bowl Company mostly serves Continental food but it also lists Button Idli with Sambar and Pongal in its menu. Biriyani is one of the highest selling items on online platforms as is butter chicken and roti so competition to sell these dishes is also high.

“It definitely bothers a restaurant owner as on the one hand you call us a partner and on the other hand you start something which is in direct competition with us,” he says, requesting anonymity because he’s worried about souring ties with Swiggy which has over 25,000 restaurants on its platform and operates in 11 cities. Bengaluru is a thriving market for food tech companies with a large share of orders coming from the city.

Since the October meeting, a section of restaurant owners have decided to start an initiative called GREAT — Group for Restaurateurs Empowerment, Advancement and Togetherness to bring all the stakeholders on the same table and encourage dialogue across the ecosystem on supply chain support to tech enabler platforms.

“The idea is to create a fair playing model that creates optimum value of everyone. Including the end consumer,” says Dhananjai Raja Kuttikad, the founder of cloud kitchen PurpleBasil. “We are only at the initial stages and in the process of formalising the group. Once a legal entity is formed and our mission is clearer, we will reach out to more restaurateurs to participate,” he said.

Strikes, boycotts ahead?

In the coming months, their cause is likely to find more supporters, spelling days of protracted negotiations ahead for market leader Swiggy and other online food ordering and delivery companies, as we have seen in the case of taxi booking apps like Ola and Uber. What started out as a lucrative business for drivers, soon turned into a race to the bottom, as commissions extracted by platforms remained at about 30% and incentives offered to drivers plunged. After protesting for nearly a month, and drawing the attention of the media as well as politicians, drivers were successful in getting the road transport office to intervene and fix standard rates for vehicles.

After this story was published, Kuttikad told FactorDaily that GREAT is looking for “collaborative discussion” with online restaurant aggregators and not take a confrontational approach.

A similar story might play out in the case of restaurants as aggregators chase better margins and also launch their own products on the marketplace. “The commissions based business will never make a lot of money. There has to be another way to find sources of revenue,” says Ritesh Dwivedi, the founder of, which runs its own kitchens and also sells on Swiggy. Dwivedi was the founder of JustEat, an online food ordering company which later sold its Indian business to FoodPanda.

For an average order value of $6, food tech companies earn $1.2 from the restaurant (~20% commission) and $.3 from the customer. The cost of delivery is $1.1, which leaves an operating margin of $.4 or 7% for the company, according to market researcher and internet consultancy RedSeer. One way to make up margins is to push sales from its own kitchens even if it comes at the risk of upsetting restaurant partners on the platform.

As more and more consumers go online (India now has over 400 million internet users) and users get comfortable with on-demand, app-based buying, platforms that aggregate their demand and match it with supply (restaurants in this case) are growing faster than ever before. An indicator is the amount of money that’s been pumped into these businesses. In the last five years, private equity and venture capital investors have ploughed in $843 million into the restaurant segment whereas Swiggy and Zomato have raised nearly $700 million in the same period, according to Venture Intelligence.

This year alone, Zomato raised $150 million from Ant Financial and Swiggy has raised $100 million from Naspers and Meituan-Dianping. Now Ola and Uber have also entered the space. After a failed attempt at food delivery with Ola Cafe, the cab-hailing company acquired Foodpanda in December 2017 for $40 million and said it will invest $200 million to grow the business. Uber launched UberEats in Bengaluru last August. Zomato and UberEats did not respond to an email query sent late on Tuesday. We will update the story with their comments when they come in.

Platforms inherently work towards bringing the cost of goods down for its consumers by encouraging competition and sometimes even becoming a seller on its own platform.

The narrative that Swiggy is competing with restaurants on its own platform is consistent with what a viral blog post in July 2017 by a set of people who claimed to be ex- and current employees. According to them, the company took its “best business zone in Bangalore” (Koramangala) and intentionally routed users to order from The Bowl Company.

In its defence, Swiggy says that the decision to show “The Bowl Company” to a user is taken by personalisation algorithms that take factors like the users buying history and time of the day into account and the company can’t unfairly influence that. Moreover, the company says that through its own brands, it is addressing the gaps in the supply chain. The Bowl Company, for instance, serves easy-to-consume bowl meals for working professionals, who the company feels is underserved for long.

“The commissions we charge are a function of the value we generate for the restaurant. Over time, the value delivered to the partners has been clearly established lending to higher commissions, again mutually agreed upon,” said a Swiggy spokesperson in an emailed response.

Both Swiggy and its rival Zomato have launched plug and play kitchens for restaurants to expand their reach. For instance, a restaurant with an established brand in South Bengaluru can serve its customers in North Bengaluru by cooking at Swiggy’s rent free, ready to occupy kitchen in that area. Swiggy’s service, launched in November 2017, is called Swiggy Access. Zomato announced Zomato Infrastructure Services in February 2017. By May 2018, Swiggy wants to provide this facility to 40 restaurants and Zomato has plans to reach about 100 locations with such kitchens.

To sweeten the deal, Swiggy also offers working capital loans to its restaurant partners. Since launch in September last year, the company said it has received 800 applications for working capital loans.Despite problems, restaurants may not go off platforms Swiggy and Zomato because they bring in volumes. According to one estimate, the number of daily orders online has grown from 200,000 in 2016 to 450,000 in 2017; projections for 2020 are set at two million.

Updated at 10:51 am on March 14, 2018  with a sentence on what restaurateur Dhananjai Raja Kuttikad added after this story was published. The rest of the story remains unchanged.
Updated at 02:29 pm on March 14, 2018  to correct the launch month of Zomato Infrastructure Services. It was launched in February 2017, not February 2018 as we said earlier.

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