Indian consumers have become increasingly value-conscious, and this shift has led to a growing expectation for discounts and deals, particularly in the food and beverage sector. This trend is rooted in the broader economic behavior of the country, where maximizing value for money is a long-standing priority. Indian consumers are not merely looking for the lowest price but are focused on securing the best possible deal for the perceived value of the product or service they are purchasing.

The Rise of Deep Discounting

Deep discounting refers to the practice of offering goods or services at significantly reduced prices, often below the Maximum Retail Price (MRP). This strategy is widely used in the F&B sector, particularly by food delivery platforms like Swiggy, Zomato, and Uber Eats. These platforms have popularized the concept of deep discounting to attract customers away from traditional dining establishments and toward ordering in. While this approach has been successful in driving customer acquisition and engagement, it has also led to a range of challenges for restaurants.

The Appeal of Deep Discounting for Consumers

For consumers, deep discounting offers an immediate and tangible benefit — lower prices on their favorite meals and convenience-driven dining options. The allure of getting a meal at half price or receiving significant discounts on bulk orders has made deep discounting a preferred choice for many, especially in a price-sensitive market like India. This practice not only attracts new customers but also helps retain existing ones by creating a perception of value that is hard to resist.

“Offering coupons and deep discounts can reduce your product to a commodity, making demand dependent on how much you discount it for the bargain-hunters you attract. These tactics are typically for businesses competing in highly commoditized markets, like pizza, or for those unable to differentiate themselves enough to build a loyal customer base that values and raves about their unique experience," Sarvesh Chaubey, Founder, The Biryani House stated. 

The Impact on the F&B Industry

Financial Strain on Restaurants

While deep discounting drives customer traffic, it often comes at a significant cost to restaurants. The reduced profit margins from selling dishes at deeply discounted prices can erode the financial viability of many establishments. Smaller businesses, such as independent cafes and bakeries, are particularly vulnerable, as they may not have the financial resources to absorb the losses associated with such heavy discounting. This financial strain has led to the closure of many small and medium-sized enterprises (SMEs) in the F&B sector, contributing to a concerning trend of business attrition in the industry.

According to one digital analytic platform 41 percent restaurants don't ever make any store level profitability and shut down within three years of opening. Another 32 percent of them make 0-10 percent profitability and only 27 percent of them make over 10 percent, explains Jaspal Sabharwal, cofounder of TagTaste.

Unsustainable Business Practices

The long-term sustainability of deep discounting is questionable. While it may attract customers in the short term, it creates an expectation for perpetual discounts, which is not feasible for most businesses. As customers become accustomed to paying significantly less for their meals, restaurants are pressured to maintain these discounts, even when it is financially damaging. This creates a vicious cycle where the survival of the business becomes increasingly dependent on continuous discounting, ultimately leading to a deterioration in the quality of service and product offerings. “Deep discounting should have been a non-starter. Restaurants are afraid of missing out and that is just bad economics. Aggregators are nothing but delivery agents. They can't let diners believe that discounts are a right,” Om Nayak from Chef Om’s Hospitality commented. 

Ecosystem-Wide Effects

The ripple effects of deep discounting extend beyond individual businesses. As more restaurants struggle to maintain profitability, the overall quality and diversity of offerings in the F&B sector may diminish. This can lead to a homogenization of the market, where only large chains or businesses with substantial financial backing can survive, reducing consumer choice and innovation within the industry. Additionally, the financial strain on restaurants can lead to job losses and negatively impact suppliers and other stakeholders in the food supply chain.

Strategies to Counter the Challenges of Deep Discounting

Focus on Value Creation

In response to the challenges posed by deep discounting, many F&B outlets are shifting their focus from merely competing on price to creating and delivering value. This strategy involves offering unique dining experiences, superior customer service, and high-quality products that justify the price point. “Some restaurants are introducing premium dining options or curating exclusive menu items that provide a memorable experience, which customers are willing to pay a premium for. This approach helps differentiate the brand and reduces the need to rely on heavy discounts to attract customers,” Gurmeet Singh, MD, Sandoz Hospitality commented.

Loyalty Programs

Instead of offering broad, one-time discounts, many restaurants are turning to loyalty programs as a more sustainable way to reward repeat customers. These programs can offer personalized discounts, special access to new menu items, or other perks that create a sense of exclusivity. By focusing on building long-term relationships with customers, restaurants can encourage repeat visits and foster brand loyalty without sacrificing profitability.

Dynamic Pricing Models

Some F&B outlets are adopting dynamic pricing strategies, where prices fluctuate based on demand, time of day, or customer segments. For example, a restaurant might offer lower prices during off-peak hours or provide discounts to specific customer groups, such as students or senior citizens. This approach allows businesses to manage customer flow more effectively and ensure that discounts are used strategically to maximize profitability.

Diversification and Innovation

To reduce reliance on discounting, many F&B brands are diversifying their offerings by introducing premium, health-conscious, or sustainable products that can command higher prices. The growing demand for healthier and more sustainable food options presents an opportunity for restaurants to innovate and cater to niche markets. By offering unique products that align with current consumer trends, such as plant-based meals or locally sourced ingredients, restaurants can attract customers who are willing to pay more for quality and sustainability.

The Role of Government and Industry Regulation

Need for Regulation

The widespread practice of deep discounting has raised concerns about its long-term impact on the F&B industry, prompting calls for government intervention. Regulatory measures could help protect smaller businesses from being driven out of the market by unsustainable discounting practices. The Ministry of Food Processing Industries in India has initiated efforts to address this issue by setting up a committee to evaluate the effects of deep discounting on the restaurant sector and recommend policies to safeguard its future.

Support for Local Businesses

Consumers also play a crucial role in supporting the sustainability of the F&B sector. By choosing to order directly from restaurants rather than through third-party delivery apps, customers can ensure that their favorite eateries receive the full price for their dishes. This direct support can help restaurants maintain profitability and reduce their reliance on deep discounting. Additionally, consumer awareness about the potential negative impacts of deep discounting on local businesses can encourage more thoughtful dining choices, contributing to the overall health of the industry.

Deep discounting, while effective in driving short-term customer acquisition, poses significant risks to the long-term sustainability of the F&B industry in India. Restaurants are increasingly recognizing the need to move away from a discount-driven model and towards strategies that emphasize value creation, customer loyalty, and innovation. By adopting these approaches and with potential regulatory support, the industry can navigate the challenges of deep discounting and build a more sustainable future. Consumers, too, have a role to play by supporting their local eateries and making informed choices that benefit the entire ecosystem.