Is Dine-in Culture Facing Heat From Delivery Aggregators In India?

Enhanced internet penetration and robust ecommerce growth have propelled consumers to prioritise convenience and accessibility while finalising their purchase decisions. The modern-day buyers are now shifting to a parallel marketplace that is online. A recent report by BNP Paribas Exane Research has pointed towards a trend in which the dining culture of quick-service restaurants (QSRs) is facing pressure from delivery aggregators. The report highlighted that the rising scale of aggregators could continue to tilt the bargaining power in their favour.

As the aggregate sales growth of listed QSR firms in the first quarter of the current financial year was 8 per cent year-on-year basis (YoY), broadly in line with the 7 to 9 per cent seen in recent quarters, the EBITDA (earnings before interest, taxes, depreciation and amortisation) margins remained under pressure due to weakness in same store sales growth (SSSG).

The Dine-in culture is primarily affected by the upward growth trajectory of the delivery aggregators as the report highlighted one such case of Zomato. Zomato’s active restaurant base of 2,76,000  is much higher than the 5,500  stores of listed QSR brands as of Q1FY25. Restaurants active with Zomato have increased to 51x total branded QSR stores in FY24 vs 22x in FY19. This brings us to a question- Are delivery aggregators taking over the dine-in trend?

Are Delivery Aggregators Creating Disruption? 
As the report stated the dine-in channel has remained under pressure since 2017, when aggregators started to build their food delivery businesses. This further accelerated post-Covid as the ecommerce ecosystem has really picked up pace since 2020. This has resulted in pressure over the dine-in culture due to various factors.

“Yes, the Quick Service Restaurant (QSR) industry is indeed facing significant disruption due to the rise of delivery aggregators. These platforms have become an essential channel for food delivery, but they have also introduced challenges for QSR brands. The control over delivery times and service standards is often out of the hands of the QSR, which can lead to delays and further dissatisfaction,” stated Gagan Anand, Founder, Scuzo Ice ‘O’ Magic.

The Case Of Complimentary Growth
While it may seem that the delivery aggregators have led to a complete shutdown of dine-in business from the outside, industry experts and leaders have rather termed the growth of such aggregators beneficial for the QSRs as well. The concept of complementary growth is visible in this scenario.

“While delivery aggregators have reshaped the food service landscape, QSRs are not being disrupted. Instead, we see them as complementary to our dine-in services. Customers seek different experiences for different occasions, some prefer the convenience of delivery, but many still value the community vibe, personalised interactions, and the experience of enjoying a meal or coffee in a QSR setting,” highlighted Rajat Agrawal, Chief Executive Officer (CEO), Barista Coffee.

The Store Addition Led To Revenue Growth
Over the last two years, the industry’s revenue growth has been driven largely by store additions while average revenue per store has dipped or not contributed much. The report stated that with slowing store additions and continued pressure on SSSG, a sharp recovery in revenue growth and margins seems unlikely.

“High commission fees charged by these delivery platforms can significantly cut into our margins, particularly on lower-ticket items or during peak times when demand is highest. This reduction in profitability per order is a direct hit to the average revenue per store, especially as delivery becomes a larger portion of overall sales,” commented Puneet Kumar Kanojia, Director BollyBites Vadapav.

The Road Ahead For QSRs? 
With tough competition from the delivery aggregators, the QSRs find themselves working round the clock to ensure they remain among the major stakeholders of the segment. The experts have called for the adoption of a multifaceted approach by the QSRs. Negotiating better commission rates with aggregators or exploring ways to reduce operational costs to offset the high fees remains crucial going ahead while working with these platforms.

“QSRs can enhance their visibility on these platforms by investing in targeted marketing efforts, such as promotions, exclusive deals, or loyalty programs encouraging repeat orders. Leveraging data analytics to understand customer preferences and tailoring offerings accordingly can also help in retaining customers,” Anand added.

Highlighting that being visible on online platforms helps brands to reach and appeal to a large canvas of guests, Agrawal emphasised that QSRs can leverage delivery aggregators to boost visibility by maintaining a strong presence online while continuing to focus on the dine-in experience. Collaborating on exclusive offers, promotions, and menu innovations with delivery platforms can draw more customers.

The insights provided by delivery aggregators have been deemed invaluable in understanding customer behaviour by the experts in the field. Using this data to refine marketing strategies, focusing on what drives customer engagement and repeat business is crucial. “By analysing peak ordering times, popular items, and customer demographics, we can tailor our menu, pricing, and promotional efforts to meet demand more effectively,” Kanojia highlighted.

While it has become evident that the delivery aggregators have indeed put pressure on the dine-in sales, the industry has seen this as an opportunity to grow their presence online while working with these online platforms. As consumers are shifting online, most QSR brands are taking various initiatives, such as dine-in only offers, improving the dine-in experience to revive the channel and remain hopeful of a recovery.