After facing the ire of restaurant partners in select pockets, food aggregators are likely to go slow on private labels and instead are seeking to enter into exclusive tie-ups with large food and beverages chains for better margins.
“In select pockets they are facing ire of restaurant chains for demanding higher commissions. While private label is a means to improve margins, partner restaurants may also feel that the aggregators are competing with them by launching own brands and driving higher traffic to them. Hence, aggregators are likely to go slow on private label and get into strategic partnerships with more number of food and beverages chains in 2019,” said Mrigank Gutgutia, Head-Consumer Internet, RedSeer.
UberEats has recently entered into a strategic partnership with cafe chain Café Coffee Day. Under the partnership, UberEats will share data, analytics and insights with CCD to help the latter identify food that is most desired and thus design cuisine-specific menus that will be available for delivery only through UberEats.
Entering into such partnerships will ease the relationship with the restaurant partners as well as improve margins. Of late, aggregators like Swiggy and Zomato have been coming up with multiple strategies to improve their margins. Most of them tried private label brands. Swiggy’s The Bowl Company and Homely has met with certain success.
“In case of private label brands the gross margins can be 50 to 70 per cent compared to 20 to 25 per cent from usual third-party restaurants. Private label business in food tech has grown from $105 million in 2017 to $170 million in 2018,” said Gutgutia.
Despite going slow on private labels in 2019, in a longer horizon of 5 years, private label are expected to play an important role in driving sales and improving margins of aggregators. RedSeer expects that 20 per cent of the sales of food aggregators would come from private label products by 2023.
Private labels increase customer stickiness and plug the gaps in customer demand that are not being fulfilled by the set of restaurants present in the area.
Promoting cloud kitchen brands and setting up cloud kitchens for restaurants partners too are steps towards driving profit margins.