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Amazon delivers supplies to restaurants ahead of food delivery launch

Restaurants are getting supplies at discounted prices at their doorstep. They will have to pay a lower commission on each order, will get inventory management, and of course, their food delivered through Amazon.

November 01, 2019 / 09:31 AM IST

Amazon is taking the service-entrance route to win over restaurant owners as it gears up to enter the fiercely competitive food-delivery business in India that will see it go up against big local names such as Swiggy and Zomato.

The Seattle-headquartered company is already delivering groceries, disposable cutlery, cleaning products and other daily needs at the doorsteps of more than 100 restaurants in Bengaluru, Delhi and Pune and that, too, at a discounted price, sources told Moneycontrol.

“The plan is to further expand this to at least 7,000-8,000 restaurants across the country in the next three to four months,” a source said of the pilot project.

Amazon, which is expected to launch the food delivery service by year-end, refused to comment when contacted by Moneycontrol.

Restaurants can make or break a food-delivery service. The relationship has, however, been tricky, with restaurants protesting deep discounts offered to customers.

Amazon seems to have found a win-win strategy. It can take advantage of its supply links and bring economies of scale to bear.

For restaurants, reliable Amazon supply at competitive prices will be most welcome as they battle discounted offers. Besides, Amazon will be taking charge of input (materials supply) and output (food delivery).

That’s a full-stack operation to create stickiness and reliability among restaurant owners.

Amazon wants to be a one-stop solution for restaurant owners. "The restaurant owner can focus on making great food. Amazon will do everything else, and in the process make money at both ends -- margins from delivering supplies to getting commissions when a food order is placed," said another source.

Zomato is already offering such a service called Hyperpure, a private label brand specialising in restaurant business supplies.

The difference, however, is that while Zomato has to source products, Amazon will continue to act as a marketplace allowing its vendors to sell to restaurants.

According to a report by the National Restaurant Association of India, the restaurant market in India is expected to grow from Rs 3.09 lakh crore in 2016 to Rs 5 lakh crore by 2021, growing at a compound annual rate of 10 percent.

“Restaurants need to order 50 different SKUs (stock keep units) for which they need to go to multiple vendors,” said a third source. “Amazon is trying to cash in on that by offering one platform for all their needs. This is also helping Amazon understand the requirement of the restaurant industry ahead of the delivery launch.”

The restaurant supplies will be fulfilled by Amazon Business, the B2B marketplace. “The company hopes to bring down the material procurement cost for restaurant owners by 10-15 percent,” the third source said. “This will allow Amazon to negotiate better pricing for customers ordering food.”

The source also said Amazon would have a deeper relationship with restaurant owners -- of a supplier of material and a logistics partner for their cooked meals.

“It is a pricing and trust game. Owners not only get restaurant supplies at a lower-than-market price, but will also have to pay lower commission on each order, manage inventory, and get Amazon to deliver the food,” the person added.

Every brand, every restaurant was different, with a different set of demands, said a Delhi-based restaurant owner, requesting anonymity. “It is not easy to accumulate ingredients demanded by different people from different geographies. However, in the case of Amazon, it is going to be relatively easy because they can back up on their vendor strength across multiple states to cater to restaurants across these places unlike in the case of Hyperpure, where they are trying to source everything on their own,” the restaurant owner said.

To take on Swiggy and Zomato, Amazon plans to keep commission rates at a fourth of its rivals. It will put in $500 million to build the food-delivery business.

It has already tied up with an intermediary service provider that aggregates restaurants. Moneycontrol couldn’t immediately ascertain the name of the service provider.

But, Amazon has its work cut in a crowded segment, where profits are hard work. Uber already has skin in the game, Zomato has extended its dine-in loyalty programme to food delivery and Swiggy is looking at raising more capital.

Amazon’s India launch will be closely watched, as it had to shut down its food delivery businesses in the US in July 2019 and the UK in December. Its plan to invest $575 million in London-based food delivery firm Deliveroo, too, has fallen through.

Priyanka Sahay
first published: Oct 31, 2019 12:51 pm