Restaurants mull stepping up legal fight against Swiggy’s Snacc, Blinkit Bistro

“There have been so many restaurants who have been in the business for years and they have still not been able to do an IPO. Aggregators have gone ahead and done their own IPOs by taking a share out of our businesses,” the association’s president Sagar Daryani said in an interview with Mint.

“It seems there is now just a deal-centric economy centered around restaurants by giving so many discounts,” said Daryani is also CEO & co-founder of Wow! Momo Foods Pvt. Ltd. “Are they creating a meaningful impact on the restaurant business anymore. That’s what we wonder.”

He said over the last year, whenever the association had presented any suggestions to aggregators Swiggy and Zomato, they had agreed to implement suggestions but failed to follow through on their promises.

Daryani, in Delhi to meet with industry stakeholders, said the restaurant industry is not opposed to quick commerce deliveries as that would “add more zing to the entire sector” and has worked well in the grocery industry. While this could work for all types of food, it would work for snacking food or quick service restaurant-style food, he said, adding that restaurants are adopting new technologies to cater to the new consumer market and are “looking forward to this disruption”.

Also read | Breaking the “jinx” of confidential IPO filings: Swiggy’s Sriharsha Majety on running a newly listed company

“But what we are not okay with is that aggregators are creating private labels and selling similar products to those offered in their restaurants but sourced from third-party vendors,” Daryani said. “Where it gets problematic is that these aggregators have access to the data of all restaurant customers and their likes or dislikes.”

In early January, Swiggy introduced ‘Snacc’, an app which has its own branded food items which are delivered in 15-odd minutes to the consumer. The app competes with the newly launched Zepto Cafe and Blinkit Bistro, which launched in December.

“They (aggregators) have all our data and nothing stops them from migrating our customers to them since these are foods sold by them and probably work on a lesser or no-commission model,” Daryani. “White-labelling of snacks is a cost to their company and they can also choose not to charge a delivery fee on these foods either–putting us at a direct disadvantage. Also, by selling similar products at throw-away prices, they are also creating a perception of discounted products and getting a consumer used to these discounts as these margins don’t exist in restaurants. We are stressed for margins.”

Also read | Early investors cheer Swiggy’s listing pop, but analysts are mixed on the stock

According to Daryani, “Their (aggregators’) own quarterly results are showing that delivery of food is coming down. There is a slowdown in the economy. On top of that, they are creating an anti-competitive platform, which is harming both us and them because if our order values fall, their business also suffers.”

The association which had earlier petitioned the Competition Commission of India against the aggregators, is contemplating adding this additional caveat to the same complaint.

Daryani said there could be a way by which restaurants and aggregators could work together to make the 15-minute delivery ecosystem better rather than aggregators setting up their own businesses.

Dine-in concerns

The association opposes food delivery platforms charging a commission on dine-in payments, seeking to separate these payments from the sales-based commission model of up to 10%, depending on the bill. “These companies have been very strong partners of ours and we would have not survived the pandemic if it wasn’t for them. But aggregator commissions are as high as up to 25% in some cases and restaurants still don’t get a GST input, so we pay as much as to the tune of 15-30% per order, on dine in or deliveries. They are becoming digital landlords and that’s an added cost which many restaurants can’t afford.”

Also read | Hotels push for GST parity with standalone restaurants

The organized restaurant industry contributes 1.9% to the national GDP and about 1.5% to the annual goods and services tax contribution, according to the association’s calculations. The food services industry will reach ₹7.76 trillion by 2028 from 2024’s ₹5.69 trillion, growing at a CAGR of 8.1%, said the July 2024 report.

Input tax credit demand

The association has also been asking the government to allow restaurants to claim an input tax credit on GST they pay for their expenses incurred. At present, restaurants pay a 5% GST on the food they sell but cannot claim the tax they pay on things like raw materials, services, or utilities they need to run their business. Allowing restaurants to claim this credit would make things fairer, as it would reduce their costs. With lower costs, restaurants could pass on some of those savings to customers, it said. For the upcoming budget, the industry has sent in a representation of two possible GST slab options: one at a 12% rate with an input tax credit for restaurants, and the other at the current 5% rate without credit and even one possibility of a 15% GST slab.

And read | GST rate overhaul to face tough review amid tepid urban demand and inflation worries