While Zomato and Swiggy have dominated the food delivery space, according to an article in Economic Times, some of the restaurants are now bulking up together to build an industry-wide app to ensure that their dependence on these food delivery giants gets reduced.
With restaurants not having any other source of revenue but to deliver online, their dependence on these 2 delivery apps have increased manifold over the last year. This has resulted in restaurants paying out commissions of as high as 20% to these duopoly market players, thereby resulting in increasing production costs, thereby affecting their margins.
Apart from denting margins, the restaurants do not even have access to their own end-consumers, thereby becoming just a manufacturing conduit, without having any customer intelligence being built.
Third, the duopoly delivery giants having built their own cloud kitchens have also started competing with the existing restaurants, so now, even the platform is jostling with the existing restaurant to get a greater share of the pie. Makes sense, if the distributor becomes a manufacturer as well, one can imagine the kind of margins it can command!!
Now, Zomatos and Swiggis of the world however have huge consumer intelligence which they have gathered over the years and should be able to serve the final customers better – They would be able to understand every customer’s taste, palette, portions any dietary preferences, approximate family size, frequency of orders, average order size, etc.
With these kinds of problems at hand, “System 1” brain which is fast, instinctive and emotional (as per Daniel Kahneman in Thinking, Fast & Slow) would want to get rid of these problems at a fast clip. Its so obvious. That is where the restaurants propose to build an industry-wide app, enabling them to curb the dominance of these 2 delivery players. Also, enabling them to go direct or via their own-industry wide app will give them out-right benefits, viz. in terms of cost reduction, establishing a connection with their customers directly and reducing their reliance on the only 2 food delivery big boys!!
However, the moment all the restaurants came up together, problems started to emerge. While building an app is easy. The complexities only come later. Questions around who would control the app, who would promote it? Cost benefit analysis and who would pay for it? What would be the incentives for consumers to download and use it? Who will maintain it? And who decides on which restaurants come on top? These are all pertinent questions to which there are no easy answers yet.
“System 2” Brain which is slower, more deliberative, and more logical starts to take precedence over “System 1”. It is better to think, rather re-think about these problems which are just a few steps away, before you begin.
Charlie Munger aptly says: “Most people approaching problems get fatuous ideas that they can fix them easily. And, of course, it can’t be fixed easily. And that’s why a lot of the correct thinking should be preventive. There are all kinds of things that are unfixable once they’ve occurred.”
As someone rightly said, its easy to start, perhaps easier to end; however, it’s maintenance which is the most difficult part. Be it relationship, friendship, marriage, business, work, Investing, etc. – maintenance is the key!! Also, think before your System 1 wants to fight and terminate relationships/connections/partners instantaneously.
Disclaimer: Please note that these are my personal views. I am NOT a registered Research Analyst as per SEBI (Research Analyst) Regulations, 2014, all investors are advised to conduct their own independent research into individual stocks or industries before making any decision. In addition, investors are advised that past stock performance is not indicative of future price action.