Disruption or destruction?

When disruption turns into destruction, we need to pause and relook at what we are doing. The recent impasse between food aggregator, Zomato, and the restaurant industry has been replete with drama. To give you a brief, the restaurant industry has been protesting certain untenable policies being pushed by online food platforms and aggregators that are destroying the food industry. It's simple really…startups such as Zomato and Swiggy picked up copious amounts of funding. While they have cash to burn, their models are not sustainable. They struggle to turn profitable while being quite aware that there won't be endless funding routes. Sometime or the other, sooner rather than later, these business models need to turn profitable.

So, they did what they should never have. They squeezed their restaurant partners, taking money out of their pockets by forcing them to give heavy discounts. From the end of last year, these deep discounts of 50 per cent and above lasted for months. Many of these months comprised the festive season, usually the best time for the F&B industry. With these high discounts, the consumer bought food at a quarter of the price and before long, was addicted to deep discounting. Swiggy changed its policies a bit later to pay out more of the discount percentage than the restaurant partner. But heavily funded Zomato, that's known for its super aggressive client acquisition, continued to coerce its restaurant partners to continue offering high discounts. Added to this were the high commissions charged by platforms such as Zomato, Swiggy, and UberEats, and additional marketing spends to be dished out by restaurant partners if they wanted to remain favourably visible on the food aggregating platform. A win-win for the consumer and the startups but terribly loss-making for restaurants and cloud kitchens that were anyway battling exorbitant establishment cost.

With no venture capital funding cushion, many small businesses virtually vanished from Zomato's algorithm if they refused to give discounts. The bigger restaurants outraged when Zomato's recent offering promised to erode their losses even further by allowing customers to get 1+1 not only on dine-in but also for deliveries. Restaurant associations picked up the cudgels and in the last six months approached the government to put a stop to deep discounting. With no real progress or changes coming in, restaurant bodies decided to "logout" of the aggregating platforms. Of all aggregators, only Zomato seemed adamant to push through its policies that seemed blatantly skewed. The most recent development being that Zomato founder, Deepinder Goyal, has simply refused to negotiate further with restaurant bodies, who in turn are continuing their protest.

This battle between Zomato and restaurants is not a fight against technology. When food aggregators such as Swiggy and Zomato first started food deliveries, they were a force to be reckoned with. Their strong logistical support reduced costs of restaurants and allowed for smaller players, especially bootstrapped ones, to get a level playing field. The quality of the food spoke for itself and businesses didn't require crores of rupees to start and sustain food businesses. That was true disruption; a change of power equations in the food industry that benefitted large number of people. What's happening now is destruction; deep discounting is killing the food industry, and hurting the small players most. A platform that is run because of restaurant partners gradually turned the screw on the very people that helped build it.

The worst is the arrogance that follows, the audacity to ignore the earnest pleas of even smaller restaurants and kitchens that have time and again complained that they are losing money. Many smaller businesses have already been forced to shutter down since bleeding is easier when you have a steady supply of life-blood coming from investors and VCs; not when you're scouting for the next flush of capital from your own savings. The same destructive ideas played out when Reliance announced plans of showing first day-first shows of movies right in the comfort of your own home, threatening the wiping out of the multiplex business. 'Video killed the radio star', the famous song comes to my mind. Can ethical business be so passé in today's day and age that it comes at the cost of destroying other stakeholders in the ecosystem?

(The writer is an author and media entrepreneur. The views expressed are strictly personal)