Zomato Gold's popularity is making it unpopular with restaurants & investors
Indian restaurant aggregator and food delivery startup, Zomato has shown strong growth since its inception. This only advanced further when it launched its food and drink discount subscription service at the end of 2017.
Ever since, it has only seen subscribers to Zomato Gold increase. It started offering the subscription on invite-only basis to limit the number, however decided to open it to everyone later. Today it sees 1.1 million subscribers driving earnings for Zomato, and is expected to bring in USD 20-25 million revenues by end of this year.
It was present state, it is drawing the ire of restaurants and investors alike.
The country’s oldest restaurant discovery and food delivery platform is facing trouble from an action that has seen it become so widely popular. When it comes to restaurants, the concept was initially pitched to increase footfall and positive reviews, thereby elevating the restaurant’s ranking and discovery through the incentive of free dishes.
However, over time as the number of subscribers and restaurants accepting Gold increased, the latter has seen their profits decline. Today, restaurants complain that customers in India expect the restaurant they go to to accept Gold; when they tell them that they do not accept Zomato Gold, they face the ire of customers walking out of restaurants or leaving bad reviews.
Moreover, for Indian food lovers and diners, Zomato Gold is a great offer. Considering that the culture of meeting and connecting with friends and family happens over food in restaurants, cafes, and bars, it provides heavy discounts on the bill of the entire table as “there is no limitation on the number of memberships that can be used on the table,” as long as there are 2 or more people dining, as per Zomato Gold’s terms and conditions.
This essentially means that if a restaurant offers 1+1 on food via the Zomato Gold, and if there are 10 members on the table, they can order 20 dishes and get 10 of them for free. This is significantly affecting restaurants’ bottom lines in an ever competing sector and has brought the rage of the National Restaurant Association of India (NRAI) — a trade body representing over 500,000 restaurants — on Zomato and similar dining startups providing discounts, such as Nearbuy, Dineout, EazyDiner and Magicpin.
They launched a #LogOut campaign to encourage restaurants to opt out of Zomato Gold and other platforms. 2000 of the 6,500 restaurant members have already unsubscribed from the Gold service in recent days.
The NRAI met with Zomato and other aggregators to discuss the concerns. However, the meeting did not go as planned and has elevated tensions in the market.
“In the recent NRAI meeting a lot of concerns were raised on deep discounting, the extent of discount, on a way to remove the bargain-hunter narrative, and how to make discounting less synonymous with dining out. We too have talked about these issues. We do understand that the dine out has to morph into something which is an experience. It can’t only be about value. After the meeting with NRAI, we drafted a detailed 10-point plan addressing the concerns and taking steps to prevent misuse of Gold and what can be done to give back more value to restaurants,” said Goyal in a recent interview with Forbes India.
NRAI allegedly did not agree to the 10-point plan, calling it insufficient. Rahul Singh, president of NRAI said in a statement, “Over the past two days, NRAI has held extensive meetings with all restaurant aggregators and we were bemused to learn that the aggregators were promoting deep discounts to stay competitive amongst each other. While one aggregator gave 1+1 (one drink or food item free on purchase of another drink or food item), the other had to adopt a 50% discount scheme in order to stay relevant.
Furthermore, it was discovered that Rahul Singh has launched a subscription offer that is very similar to Zomato Gold from his own startup, The Beer Cafe — leading to a backlash of hypocrisy and usage of the NRAI platform for personal gain.
While Deepinder Goyal reportedly tweeted, “Somewhere, we have made mistakes and things haven’t gone as planned. This is a wake up call that we need to do 100x more for our restaurant partners than we have done before.”
A month ago, Zomato launched an upgrade to its Gold service, called “Infinity Dining” whereby people can order an unlimited amount of food and drink for a specific amount depending on the restaurant.
Happy customers, unhappy investors
Restaurateurs are not the only ones having an issue with Zomato Gold. It has been reported that changes to the Gold subscription has been a long standing demand of investors in Zomato.
Investors are reportedly of the opinion that Gold needs to undergo a major revamp, going back to the reason why it was launched — to be an exclusive invite-only programme for high-end customers or patrons. If not, investors want Gold should shut down its operations if it continues in its current state.
There is a backlash from diners against restaurants who have opted out of Zomato Gold. In a country where wages remain low, especially for young graduates, costs are increasing, inflation is gaining ground, and the culture of dining out is strong, Zomato Gold is a hot favourite, but also much needed for saving on costs by many. We have seen some of Mumbai's restaurant rates be on par with those of Dubai. However, the deep discounts for which it has gained traction is not beneficial to the business sector even though it brings in revenue for Zomato. Changes are needed, and at SME 10X, we’ll be watching out for them.
