By Ian Ohan
Opinion: What every restaurant merchant in the UAE has learned the hard way but is afraid to say
As F&B consumers continue their transition to online, many restaurants in the UAE remain ill-equipped to meet these new order and delivery needs.
As such, they are almost entirely dependent on third-party aggregators, who answer this important requirement in today’s convenience-driven industry.
According to McKinsey & Company, the global food delivery market is estimated at around €85bn ($105.9bn) and is projected to grow at a rate of 3.5 percent per annum until 2020. In 2017, it is estimated that 42 percent of all delivery orders were made online, a figure that is expected to increase to 58 percent by 2020.
In the GCC, the food delivery market is currently around $350m, with similar growth forecasts as above.
This is the reason many large investors have arrived to fund the aggregators, many of which can never be profitable in their current form. For restaurants, then, the issue becomes how to compete with aggregators that do not need to be profitable:
Will investors continue to give these companies a pass or will they start to apply the same rigour as they do to other Silicon Valley companies? Will investors demand profitability? Will investors demand ethical behaviour? Will customers?
Recently, one aggregator demanded that Freedom Pizza, my company, offer credit-card payments on the aggregator’s platform, which we have declined from the beginning of the relationship. As a result, the aggregator cancelled our agreed-upon contract and offered us a revised deal with credit-card fees and a higher fee overall. “Take it or leave it,” they said. And, well, we left it.
The problem is that in this investor-fuelled gold rush, many aggregators in the Middle East operate in ways that are harmful to restaurant operators – and are arguably unethical. Their aggressive practices help aggregators compete among themselves for market share and so they continually strengthen their command over the consumer’s desire for convenience – which affords them undue power over restaurant merchants.
Instead of a symbiotic relationship between restaurants and aggregators, it is parasitic. The aggregators need the restaurant merchant to attract customers, yet once they have them, the aggregators insert themselves into the relationship and begin to exert undue control. While the availability of the aggregators’ services may expose the restaurant merchant to new customers, it is at a high cost.
What is clear to me is that there is a genuine conflict of interest between aggregators and restaurant merchants. The merchant is paying for a service but is really no more than the bait – yet they’re still picking up the tab.
The large imbalance of power is evident in the aggressive way aggregators approach their “client” merchants. Much of the talk of “partnership” is, in my experience, just that – talk. But merchants are reluctant to speak out against these practices for fear of retribution and genuine business consequences.
Aggregators take unsustainable fees reaching as high as 37 percent of the total transaction. They also take autocratic control of customer data while waging an online war against the very merchants that are paying them by skimming the merchant’s customers online through aggressive Search Engine Optimisation (SEO) practices. They then earn additional fees for retargeting merchants’ competitors on their platforms and also use coercion and bullying tactics to induce merchants to offer discounts on the aggregator’s platforms.
Governments are stepping in to challenge aggregator business models with regulation – they are finally calling them out. While they recognise that consumers want these services, this is no longer enough of an argument to look the other way. They must now also provide their services on an equal ground and within ethical norms.
More competitors are entering the aggregator markets every day, putting increasing commercial pressures on participants to compete for restaurant merchants, customers and even drivers. Restaurant merchants are also realising the unsustainable costs and the risks of abdicating control of the consumer relationship, and are starting to opt out of services and seek alternative ways to fulfil their e-commerce and delivery services.
Successful strategies are emerging. In the US, Panera Bread has developed its own delivery and technology platform, which is driving industry-beating performance. The pizza delivery companies defying the aggregators continue to grow their sales quarter-on-quarter. But the real challenge that all of the local aggregators are secretly trembling about is Amazon and its recently launched Amazon Prime subscription service – now including restaurant delivery. It is being offered in the US at no cost to restaurants.
As a matter of principle and ethos, “Freedom Pizza will not be bullied by companies that are supposed to be providing us with a paid service and supposed to be our partners”. I feel a responsibility to voice what others in our industry may be frightened to say. I truly believe there is an equitable way for aggregators to sustainably conduct their businesses.
This also means that there is a gap in the market for a new disruptor, one that recognises the potential symbiotic relationship between restaurant merchants, consumers and aggregators.
Ian Ohan founded Big Dwarf, a proprietary delivery software solutions company
Big Dwarf is Freedom Pizza’s solution to online food delivery issues. The software works on the Freedom Pizza proprietary digital e-commerce platform – Freedom Connect – and offers an app and web-based ordering facility. It includes a dietary preference setting, visa checkout, Apple Pay compatibility and even a gamified reward platform. Future plans include Facebook Messenger ordering. According to Ohan, the platform has propelled Freedom Pizza to more than 50 percent online order rate in less than two years. In 2017, Freedom Pizza was awarded the Digital Innovation of the Year by Images Retail Middle East in recognition of its platform.