QSRs tweak strategy to fend off Swiggy, Zomato

Domino’s and McDonald’s are having a hard time controlling delivery costs: Report

The new-found aggression shown by online food ordering apps such as Zomato and Swiggy have changed the business dynamics of traditional quick service restaurant (QSR) particularly in delivery operations.

According to a study conducted by Edelweiss Financial Services, traditional QSR’s are battling rising salaries and attrition with Zomato, Swiggy and others fighting it out for top spot. With the cost of delivery rising across the board, the industry is experimenting – recruiting women and hiring from Tier–II and Tier-III cities, promoting the pickup option and weighing drone deliveries.

“Online platforms such as Zomato and Swiggy have sharpened their focus on the delivery segment. With online orders exploding and expansion to new cities on the cards, leading online food platforms are looking to sharply scale up their delivery operations. As players are building up their delivery force, traditional delivery focused companies like Domino’s are seeing a challenge in managing delivery costs,” said analysts at Edelweiss Financial Services.

Employee costs make up 15-20 per cent of QSR sales and the delivery personnel in some of the food aggregators earn in between `25,000 to `30,000 per month. Recently, Swiggy raised $1 billion from investors, which according to analysts will largely be employed to expand business, enter new regions and venture in other business streams (hyperlocal deliveries), all of which would entail significant strengthening of their delivery operations.

Leveraging their presence, tie-ups with restaurants and delivery capabilities, Zomato and Swiggy are venturing into new business streams.

For example, Swiggy is preparing to foray into local commerce services under a new brand name Dash, delivering goods from supermarket chains, pharmacies and meat shops among others. On the other hand, Zomato is focusing on backward integration in the B2B segment by enabling restaurants and hotels to source fresh produce through its HyperPure brand.

“With these players getting aggressive on building up their delivery force, traditional QSR players such as Domino’s and McDonald’s, are having a hard time controlling delivery costs. As the demand for manpower is increasing in the delivery space, companies are trying to woo employees with higher wages and other benefits. This has pushed up the cost of delivery for players across the board and believe that delivery costs for Domino’s and McDonald’s are likely to inch up hereon,” Edelweiss added.