Hi,
This is Vikaas here, Investment Advisor and Founder of www.jaagrav.com. Today I am going to talk about how some of the restaurants are coming together to build an industry-wide app to annihilate the competition posed by the Food delivery aggregators, Zomato and Swiggy – also known as “virtual landlords” by the National Restaurant Association of India (NRAI).
While Zomato and Swiggy have dominated the food delivery space, some of the restaurants are now coming together so that their dependence on these food delivery giants gets reduced.
First, During the pandemic, with restaurants not having any other source of physical dining 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.
Second, 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 kind 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 connect with their customers directly and reduce 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 consumer 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.
The 2nd order Effect is something which a person needs to ask. Unless you ask that, the Type 1 brain which takes decisions very quickly tends to rule the mind, often at your expense in the long term.
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.”
I am not of the view that the restaurants shouldn’t have a separate app and compete against their virtual landlords. After all, if one is able to save more than 20% of their expense, it perhaps makes sense!!
But its also equally important that it is thought through beforehand and is then maintained. Maintenance which is the most difficult part. Be it relationship, friendship, marriage, business, work, Investing, etc. – maintenance is the key!!
Would the restaurants be able to build and maintain their own exclusive digital franchise? Only Time will tell; till then – enjoy the best of both the worlds!!
Please note that these are my personal views. Request you to conduct your own independent research or consult your financial advisor before investing.
Hope you enjoyed listening to this!!
For more interesting topics, you may check out my website, www.jaagrav.com. If you want to reach out to me, you may email me at vikas@jaagrav.com
Thanks!