Restaurants, hotels, cab drivers unions cry foul as online aggregators continue the discount-driven battle

By: | Updated: December 6, 2018 8:04 PM

What all parties say and why are online aggregators facing the heat in India?

Why are online aggregators facing the heat in India?

On December 01, around 270 hoteliers boycotted MakeMyTrip and Goibibo in Ahmedabad city of Gujarat alleging heavy commission and discounts by the latter two. Both MakeMyTrip and Ibibo group had merged together in a stock transaction in October 2016. And it’s not just those two, Oyo too has attracted a nationwide lobby of budget and mid-market hotels.

This came days after food-delivery apps ran into trouble with Kerala Hotels and Restaurants Association (KHRA) who are also boycotting orders from apps such as Uber Eats, Zomato and Swiggy in Kerala’s urban areas of Kochi and Thiruvananthapuram since December 1.

In October 2018, Ola and Uber drivers too went on strike in Mumbai to demand higher minimum fare and charge per kilometre.

In its order on November 6, 2018, fair trade regulator – Competition Commission of India (CCI) – rejected the allegations of price-fixing made levied on two leading cab aggregators – Ola and Uber.

The complaint in the case, Samir Agrawal had alleged that the pricing adopted by the cab aggregators – Ola and Uber – takes away the liberty of individual drivers to compete with each other and thus, amounts to price-fixing by these companies, in contravention of the provisions of Section 3 of the Act.

So, why are online aggregators facing the heat in India? Let’s take a look at the online aggregators’ scenario.

Food-delivery platforms

Although, after a slump in the last year, India’s online food ordering sector is showing signs of recovery. As per a report by RedSeer Consulting in January 2018, the online food ordering sector is growing at 15% every quarter.

App-based taxi services

On cab aggregators, RedSeer Consulting in its report in 2017 says that “after a long period of uninterrupted growth, Q1-CY17 saw a 5 percent decrease in the overall cabs bookings for the industry.”

The firm attributed the decrease to “reduced driver incentives leading to strikes and supply-demand mismatch”. Other reasons that were sighted were incentive drop, commission rates and a minor decline in share of cashless rides from demonetisation in Q1’17.

The research also regulatory hurdles by state governments in the previous year as a reason for the decline.

Online hotel booking aggregators  

The online hotel segment could very well generate about $2.3 billion in gross bookings by the year 2020 for online travel agents (OTAs), a report by Deutsche Bank said in 2017.

As per Kapil Goswamy, CMD, Bigbreaks.com (a tours and travel dedicated portal), the online travel industry in India is expected to reach Rs 1.2 lakh crore ($18-19 billion) by 2021 with deeper internet penetration and greater adoption of digital modes of payment, said a report in YourStory.

Most of the online aggregators have seen big boom owing to the rising internet penetration year after year. With investors helping out start-ups and the deep-pocketed tech giants offering heavy discounts, an individual business owner is finding it hard to compete. But what it means

What do the unions say?

Hotel and Restaurant unions

“UberEats charges almost 30 percent commission per order whereas others like Swiggy charges between 20-25 percent. The problem is there’s no uniformity. They charge less for some restaurants, more for others.”

On being asked about the boycott to food delivery apps, Azeez Moosa, Ernakulam district president of Kerala Hotel and Restaurants Association (KHRA), told the Indian Express, “The commission rates in Kerala are higher compared to cities like Bengaluru and Mumbai. For example, UberEats charges almost 30 percent commission per order whereas others like Swiggy charges between 20-25 percent. The problem is there’s no uniformity. They charge less for some restaurants, more for others. So there’s a sense of partiality.”

Nasser, who owns Thaal restaurant in Kochi, equated the food delivery apps to ‘cancer which is spreading bit by bit’ in the report carried by Indian Express. “My restaurant gets a lot of online food delivery business, but the commission rates are too much. It has to be profitable for us too,” he said.

Abhijeet Deshmukh, spokesperson, Hotels and Restaurants Association (HRA) – Gujarat said “There was a time when online booking portals used to charge only 15 to 18 percent as commission. Now, these two portals are charging 40 to 45 percent. Further, indiscriminate discounts offered by them on room tariffs is also a major threat to our business these days” said Deshmukh.

Around 270 hoteliers boycotted MakeMyTrip and Goibibo in Ahmedabad city of Gujarat alleging heavy commission and discounts by the latter two.

“Our demand is that the commission should be kept at 15 per cent. Discount should be zero. Portals can not dictate terms to us. With these demands, 270 hotels in Ahmedabad have stopped taking bookings from these two portals since December 1,” said Deshmukh.

“Our association has decided to start the boycott from Ahmedabad. Later, hotels in other cities will follow soon. In Maharashtra too, hoteliers have threatened to walk on the same path if the issue is not resolved,” he added.

READ ALSO | Here is why Ahmedabad hoteliers are boycotting MakeMyTrip & Goibibo

Deshmukh further claimed that at present nearly 50 to 55 per cent business comes from these portals, which is expected to go up to 70 per cent in the future.

This will admittedly make the owners dependent on the portals.

“A day will come when hotels will have to either accept each and every condition of these portals or shut their business,” he said.

“This damages the hotel’s reputation while simultaneously distorting the market scenario. Ironically, the OTAs have a clause in their agreement that forbids hotels from discounting their own rates but are themselves free to do so. This disparity is not just unfair but is clearly intentional and is done with the objective of market cannibalisation,” he added.

S K Jaiswal, vice president (North), FHRAI also added that over 40 percent of the rooms available on these travel portals are illegally operated.

They are “operating without valid licences from local or state authorities, and hence, are cheaper”.

“Not only does this put legit hotels at disadvantage but such indiscriminate hosting encourages illegal activities. Such non-compliance of statutory rules and regulations compromises guest safety and is a big concern for everyone involved,” said Jaiswal.

According to the company, OYO India has over 125,000 rooms and about 87,000 rooms in 171 cities in China. (PTI)

Budget Hotel Association of Mumbai president Ashraf Ali said on Oyo on which they are reportedly planning  an action, “Oyo is not keeping up with the agreements. In some cases, they are telling our members to change the agreements, else they will not pay them and are asking for new clauses,”

Ali said and added that the company has a big legal team and it is tough for individual hotel owners to file a case and get the money.

Taxi Unions

In October 2018, Ola and Uber drivers too went on strike in Mumbai to demand higher minimum fare and charge per kilometre.

“Our demand is a dialogue with the governments so that issues like the monopoly of app-based cab aggregators and haphazard implementation of speed governors are resolved through mutual agreement,” Inderjeet Singh, chairman of the All India Tour and Transport Association and convener of the joint forum had told Hindustan Times during the October 2018 strike called by Sanyukt Sangharsh Samiti (one of the Delhi’s major auto-taxi unions).

Earlier in March 2018, representatives of Sarvodaya Drivers Association had continued the strike even after Mumbai had called it off.

In a media statement, Kamaljeet Gill, chief of Sarvodaya Drivers Association stated that the drivers in Delhi NCR) be carrying out a large-scale protest against the cab aggregators as they’re paying hardly one-third of what they promised while boarding people.

Are unions hurting business?

In a country, where millions of young aspirants enter the workforce every year, these issues cause disruptions in investment opportunities and job creation.

Many taxi unions in different states are lobbying together to start their own taxi-aggregator apps. Similarly, the restaurant union in Kerala too plans to start its own food delivery app to cater to restaurants in their network.  

It remains to be seen whether apps backed by union or governments could compete with giants who are old players in the business.

The common ground – Is there a solution on the horizon?

Although the hotel unions initiated the boycott, they still wish to regularise commissions and discounts and want to “portals to stop dictating terms.”

KHRA representatives, although firm in snapping ties with online food delivery firms from December 1, were ready “for talks to create a common ground.”

Suhail, who runs the popular Ummees restaurant in Kochi told Indian Express, “We are ready to cooperate with them, but they must reduce the commission rates.”

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