Deep Thoughts on Deep Discounting
Last Friday, I brought together two of my favourite things - Samosa Making & Policy Making.
In my position as the Chief Eating Officer at The Bohri Kitchen & Member of the Delivery Taskforce at NRAI (National Restaurant Association of India), I was invited to participate in a panel discussion organised by the Competition Commission of India at the India Habitat Centre in Delhi on The Changing Competition Landscape in the eCommerce Sector, specifically Food Delivery.
It was an insightful discussion thanks to some amazing fellow participants (from left to right) Mohit Gupta (CEO, Zomato), Jimmy Shaw (Managing Director, Bona Sera Hotels), Thomas Fenn (Partner, Mahabelly), Anurag Katriar (CEO, Degustibus) and Rahul Bothra (CFO, Swiggy) all of us being superbly moderated by Ratna Bhushan (Senior Editor, Economic Times). On the sidelines, a journalist asked me "Munaf, can you elaborate on the pain being felt by restauranteurs and the confusion on the part of aggregators around discounts?" Here's my response,
In Summary - We dont have a problem with spending on marketing and neither is there an issue with investing in discounts as a part of marketing. the issue is with Deep Discounts.
1. Restaurants, like any business, have always had and will always have a marketing budget. We assign anywhere between 5-15% of our P&L towards marketing activities depending on different F&B business models. (i'm assuming a healthy mix of performance and branding - and that the business has not raised a few million in funding)
2. Marketing is done with an objective of acquiring new customers, retaining loyal customers and ultimately generating profit for your business through customer lifetime value (i.e. the business generated by a customer towards the brand over his or her lifetime).
3. In Food Delivery at least, Marketing can take many forms, including but not limited to - Social Media Promotions, Pamphlets, Print Ads, Hoardings, SMS Campaigns, Email Campaigns and most importantly Aggregator ad inventory such as Banners, CPCs and Discounts. 4. Discounts are one of many marketing tools F&B businesses use - and the discounts we use are with the objective of either acquiring a new customer or retaining a loyal customer to generate profits from the same over his or her lifetime. (reference : customer lifetime value)
5. Two things are going wrong in the current scenario,
a. Our 5-15% marketing budget is being spent purely on Discounts. Nothing is left for anything else. In fact Restaurants are bleeding, because they are even spending 20%+ on the same.
b. These are not discounts in the conventional sense (as defined above) but the dreaded specie known as Deep Discounts.
6. Whats a Deep Discount?
a. A DD, very much like the character out of Dexters Laboratory is a very short sighted, slightly irrational marketing tool.
b. DD is also very loud, so loud that it overwhelms you irrespective if you are a restauranteur or a customer. Eventually customers normalise themselves to this new type of noise, becoming discounts addicts and Restaurants feel they simply have to offer discounts to even stand a chance.
c. The discount with or without cross funding can go upto 50%, permanently eroding the perceived worth of your product in the eyes of the customer and of-course decimating your P&L. (reference : a Rs 50 biryani)
d. Since we dont know who the customer is for the order we get via an aggregator - no name or phone number or address - this makes it impossible for us to adopt conventional remarketing efforts to generate and track profit over the lifetime of the customer. Hence making this a discount without any medium or long term objective.
7. The challenge though from an aggregators point of view - will customers buy and will the market grow if we stop Deep Discounts? And is it okay legally and morally to share customer data with the brands they've ordered from?
Conclusion - This is a question that does not have an easy answer - but creating a $37 billion food delivery market was never supposed to be easy. But there's no reason why holistic growth must come at the cost of outlet level profitability for the 'Bohri Kitchens' of the world.
Here's to Samosa selling becoming more profitable & sustainable in the near future, not just for me but everyone including Consumers, Restauranteurs and Aggregators.