Online food delivery to get costlier amid rising inflation, discount demands

Ordering food on platforms such as Swiggy and Zomato will likely get more expensive this year as both restaurants and cloud kitchens, which prepare food for delivery at the customer’s doorstep, seek to increase prices.

Inflation is accelerating, with the consumer price index measuring it at a three-month high of 4.91 percent in November, and Swiggy and Zomato are pushing for more discounts for food delivery on their platforms.

Despite a marginal drop on food items in December, experts say that it is unlikely to have prevented inflation considering other factors. Over the last year, vegetables, edible oil have seen an increase in costs along with high prices of petrol and diesel that pushed up transportation costs. Further, experts have cited that inflationary pressures may be strengthened going forward on account of the restrictions that are being imposed across cities in the wake of COVID-19 cases.

Confronting the third wave of COVID-19, which has caused customer footfalls to decline and prompted cities like Delhi to close dine-in facilities while triggering a renewed surge in food delivery, they may have no option but to hike menu prices, multiple restaurant and cloud kitchen owners said.

“Brands and restaurants are looking at doing a price rise on account of high food inflation and cost of raw materials (rising) up by up to 12%,” said Sagar Daryani, co-founder and chief executive officer of Wow! Momo, a Kolkata-based chain of fast food outlets.

Daryani, who is also vice president of the National Restaurant Association of India (NRAI), added that Wow! Momo will be looking at a price increase of up to 7% on average across its portfolio for both online and offline service by the end of this month and early February, respectively.

Offsetting margin pressure

Swiggy and Zomato did not respond to e-mailed queries. Rebel Foods, which last year joined the club of start-ups valued at $1 billion or more, said it will not change pricing.

“There would be no change in the end customer price for D2C channels,” said Raghav Joshi, co-founder of Rebel Foods, which operates a network of cloud kitchens for brands such as Behrouz Biryani, Mandarin Oak, Ovenstory Pizza, and Faasos.

Other entities are working it out differently.

Quick Service Restaurant chain Jubilant FoodWorks, the operator of Domino’s pizza and Dunkin’ Donuts in India, has increased prices by 5-6% on average across its portfolio.

“Domino’s India remains focused on maintaining its value-for-money proposition, and has taken minimal price hikes since 2016. Even after the price hike, Domino’s prices are lowest among pizza peers,” the company said in December. “We view the pricing action positively as it helps offset some margin pressure, with limited impact on demand.”

A Delhi-based restaurant owner told Moneycontrol that the industry at large is looking at increasing prices, citing inflationary pressure.

Competition spurs deep discounting

“We have also increased our prices as (gas) cylinder costs, food oil, other items, have shot up…restaurants are bound to increase costs. At the same time, food delivery apps like Swiggy and Zomato are forcing restaurants to offer higher discounts, so as to increase the volume of orders on these apps,” this person said.

“Most of the restaurants will be increasing their prices, if not done yet,” he added.

A Bengaluru-based entrepreneur, who also runs a cloud kitchen business, said deeper discounting on these platforms had started since the outbreak of the coronavirus disease (COVID-19) in early 2020.

With an increase in the number of cloud kitchens, and dine-in restaurants focusing on online delivery after the outbreak, competition to offer higher discounts has increased significantly, this person added.

Post-pandemic, cloud kitchens have become a thriving business. The domestic cloud kitchen market is expected to grow from $400 million in 2019 to $2 billion by 2024, according to market researcher RedSeer Consulting.

Additionally, starting from January 1 this year, Swiggy and Zomato have been directed to collect and deposit tax at a 5 percent rate in a move that aims to bring under the tax net food vendors who are currently outside the Goods and Services Tax (GST) threshold. The decision is likely to impact only restaurants that are earning under Rs 20 lakh per annum, according to the National Restaurant Association of India (NRAI).