Israeli restaurateurs to set up app to rival Wolt

Wolt  / Photo: Cadya Levy, Globes

The country's restaurant owners feel financially strangled by the fees taken by food delivery platforms Wolt and Ten Bis.

Israel's restaurateurs are teaming up to compete with food delivery platform Wolt. "Globes" has learned that a group of restaurateurs is joining forces to develop a food delivery app that will charge half the commission taken by Wolt and its local competitor Ten Bis. The initiative is spearheaded by a group of restaurateurs led by chef Yehonatan Borovich, owner of the M25 restaurant, which has branches in central Tel Aviv and Ramat Aviv.

Borovich hopes to recruit 40 large restaurants into investing about NIS 100,000 in the project, with an intended return on investment after about two years of operation. The delivery app will charge half of the fee charged by Wolt and Ten Bis - an average of about 27% (excluding VAT) - either at a 15% maximum, or at a pre-determined maximum fee.

"We thought this was a trend that would fade away once Covid-19 was over, but our research has shown that the trend is here to stay - and with a large market share. We don't want to be Wolt suppliers any more. We want to control the value chain," Borovich told "Globes". "We found out how much it would cost to copy an app like Wolt, and understood that the investment in setting up such an app is about NIS 3 million, which is an amount we can handle."

Borovich continued, "During this period, a blue monster called Wolt sprouted up, right before our eyes - or as chef Eyal Shani calls them, 'the color of the plague.'" Borovich said that in his conversations with other restaurateurs about why there was no alternative to the app, there was always the idea that this was a huge multimillion dollar company. One of the restaurateurs in the emerging team is Asaf Atias, owner of the Italian restaurant chain Vivino, who then commissioned research on behalf of the team about the delivery services market, conducted by consulting firm Czamanski Ben Shahar and Co.

This initiative actually came to address the fees charged by Wolt. "Today, out of an order of 600 shekels from an Italian restaurant in Tel Aviv, Wolt takes 200 shekels. It appears from the economic survey carried out for us that it's possible to cut the commission in half. This changes the world order, a game changer."

As the venture becomes profitable, the goal will be to channel the profits into a lobby to support the restaurant industry in the Knesset in terms of legislation, taxation and regulation. Meanwhile, 10-15 restaurants have joined Borovich - behind the scenes, so as not to upset Wolt. However, he insisted, he has no intention of managing this operation, as he's longing to get back to the kitchen.

"I want this industry to be in good hands, I want to go back to making kebabs, I don't want to go to meetings with government ministers," declared Borovich. "Today, we don't make enough (for lobbying). Our vision is for us to have a legal department that can advise any restaurant that needs assistance."

Restaurateurs "addicted" to Wolt

The venture's final model is still in the formative stages, as is its legal structure, but the restaurateurs' goal is to create a force that will offer an alternative to Wolt's tremendous power. But setting up such an operation and managing it is a huge challenge, especially when the two largest companies operating in the field of food deliveries in Israel today - Wolt and Ten Bis - claim that their food delivery services are operating at a loss.

Do you believe you can offer an economic model that will allow you to both cut commissions in half, and also make a profit?

Borovich: "Our numbers don't indicate that they're unprofitable, and I don't know how their expenses are structured. It's hard for me to see how Wolt is operating at a loss when it neither hires workers as salaried employees nor pays social benefits. What I see here is a model that's been so successful, it has spread all over the country, with restaurateurs 'addicted' to Wolt and afraid of losing income. It's impossible to keep up with these rates. I feel we should at least try to create an alternative solution."

Will you be able to deploy nationwide?

When we reach critical mass and enough restaurateurs. We want to be in all the places, like Wolt, that have big enough traffic. I hope it reaches the whole country. It is true that it's hard to get three restauranteurs to agree on anything, but if we create this organization, we can redeem the entire restaurant industry.

"If there would be one app that includes all the good quality restaurants - why not order from it? We know how to handle these sort of investments. The customer will come to me because ultimately they'll find what they want. We're not looking to put Wolt out of business - I'm looking at the big customers that give Wolt NIS 300,000 every month, and I want them as clients."

Borovich also refers to the disconnect Wolt has created between customers and restaurants. "Today I don't even know our customers' names, orders are received with a subscriber number, without a name. If people want my food, they should search for me, or search for other restaurants they like - that's basic.

Another challenge Borovich faces in this context is the "addiction" restaurateurs have to what Wolt provides during this period, and their fear of giving up on its benefits. He attributes this addiction to the increase in revenue Wolt has generated for restaurants during the lockdown periods; at the same time, there has been a significant erosion in their profits due to the level of commissions.

Technology takes advantage

This initiative is also gaining momentum from professional association, Misadanim Hazakim b'Yahad[restaurateurs are stronger together). The association was established about two years ago to address the aggressive changes taking place in the catering world even before Wolt's entry into Israel, ranging from regulatory changes to Wolt's competitor, Ten Bis, which at that time focused mainly on employee meal cards (restricted use cards issued to employees for use towards food purchases).

Today, said association head Tomer Mor, "Our mission is increasing profits for restaurateurs in Israel. As a result, we're both examining other areas where we can act and streamline business, in parallel with ongoing procedures for reducing regulation, lowering taxation, and businesses licensing reform, to make things easier and lower operating costs for restaurants."

Mor refers to the fact that Covid-19 has significantly intensified the damage to restaurants. At first, restaurants were given the choice of operating through delivery services or handling takeaway orders themselves The closure imposed by the government on the restaurant industry has forced smaller, less powerful restaurants to operate via a delivery system that enables cash flow, but, in reality, strangles them.

During the restaurant industry closure, pressure from restaurateurs and their professional association led to Wolt and Ten Bis agreeing to ease some of their terms. Mor admits this was temporary: "We couldn't influence the reduction in prices for long. Restaurateurs are in a situation where technology companies have taken control of the database, and the restaurateurs are the work-hands who don't benefit from their labor. No entrepreneur wants his business, which is supposed to bring him profit, to make him pay for his right to exist. The association will help lead an effort that will allow restaurateurs to return to profitability."

He adds, "Beyond economic action, this is also an action about values, allowing restaurateurs to regain their power in a developing sector. These new trends won't come from outside, they will come from within, and not at the industry's expense. Just as ghost kitchens can't replace a full service restaurant experience or take-away, technology can't use restaurants just to take advantage of them."

Costs the same as Covid-19

Among the interesting data-points to come out of Czamanski & Ben Shahar's analysis are the two main reasons influencing customers' choice of restaurant. A survey conducted by the company last October from a sample of more than 1,000 respondents in the metropolitan areas of Tel Aviv, Haifa and the Sharon region, indicates that 58% of customers first choose the type of food they will eat - such as a cafe, Italian, Asian, meat or fast food. 42% choose a specific restaurant, with the most dominant reason for this answer being "delicious food." Respondents preferred the taste of food over a restaurant's atmosphere, cheap price, proximity to home, or it being kosher.

The other interesting finding that emerges from Czamanski & Ben Shahar's analysis addresses the question of whether the coronavirus lockdowns really made us spend more money on deliveries. An analysis of the survey results shows that the average monthly expenditure on food deliveries prior to the pandemic was NIS 289 per month. During the Covid-19 period, this expenditure rose, according to survey respondents, by only 3% to NIS 299 per month.

The same respondents also estimate that after the pandemic passes, the average monthly expenditure will decrease 12% to NIS 263. Meaning, that during the nationwide lockdown period, respondents estimate that their monthly expenditure on food deliveries decreased by 9%, cumulatively.

"Although the sense was that there were lots of delivery bikes on the road, the market didn't grow significantly," says Czamanski & Ben Shahar CEO Tamir Ben-Shahar, referring to the fact that the market is expected to shrink in the post-Covid-19 period. "People state they'll consume less after the crisis, probably because they reckon they'll have less money to spend."

In addition, the survey examined categories of monthly expenditures. This division shows that, on average, 21% of the expenditure on food goes to cafes, 16% to Italian restaurants, 15% to Asian restaurants, 13% to meat restaurants, and 11% to fast food restaurants.

As for the future, post-coronavirus world, it appears that 43% of respondents state that their monthly expenditure on food deliveries will be similar, 40% say their monthly expenditure will decrease, and "only" 17% of respondents stated that they will increase their expenditure on food deliveries after the pandemic passes.

Ben Shahar, who conducted the economic analysis of the deliveries sector for the restaurateurs, notes the need for this initiative but also its inherent challenges. "The restaurateurs realized there is another way to make money and reduce expenses. If I have a strong brand, I can deliver food to people's homes without having to invest NIS 15 million in a restaurant, and make a profit. They realized that everything they once spent on their restaurant premises was now being passed on to delivery companies, and they want to try to put those savings into their own pockets. They don't need a partner taking a third."

Nonetheless, Ben Shahar adds, "Everyone has expertise in a particular field. They will have to set up a delivery operation. Is that possible? Yes, and Domino's Pizza is the best proof. Do the restauranteurs want to set up a delivery company? They can't be slackers - to succeed, they have to innovate and provide value."

Published by Globes, Israel business news - en.globes.co.il - on December 24, 2020

© Copyright of Globes Publisher Itonut (1983) Ltd. 2020

Wolt  / Photo: Cadya Levy, Globes
Wolt / Photo: Cadya Levy, Globes
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