Food Tech Industry in India is billion dollars market. It is touted to be a $78 billion dollar market which is growing at a rate of 16% annually. Now when this space is this cluttered obviously everybody wants a piece of it or thinks they can get a piece of it. No wonder the space seems to be highly cluttered with startups sprouting from everywhere. Food Tech companies though have been in nothing but losses for so long now. Hence all the investors are skeptical when asked to invest in food tech companies. Nobody wants losses. And this resulted in a funding squeeze in 2016 with many companies desperately looking for funds and investors declining their requests. Despite such squeeze food tech industry online saw a cool 150% increase in their order volumes. It’s a well known fact that many startups have been scaling their operations down owing to lack of funds and all. Most of them shut down when they are done burning their fingers too. But a few players like FoodPanda, Swiggy and Zomato survive. They are so well footed in the market, they don’t really have to worry about any of this any time soon.
But what’s ruining it for the food tech startups? Here is our take on it.
Many people walk into it with ambition without really weighing pros and cons. No matter what sort of innovative ideas they come up with at the end of the unit economics and deep discounts kill them. Both of which they can do nothing about. Probably would’ve been better if they could retain customers after incurring such losses to acquire them. But no, every other day one or the other companies and starts throwing fresh discounts. And customers move to them instead. Fact is at least in India customers love discounts, the moment they are gone there ends their loyalty. So whatever USP you come up with, it doesn’t really work. Because there is always going to be another company out there which will give them what they want.
Take for example, FoodPanda, throws a clean 40% discount the first time one orders. And on top of it most of the restaurants on it are asked to throw up to 40% OFF discount. Most customers choose it for what they have to offer. And the moment these offers are gone, nobody will even look at FoodPanda.
Same goes with Swiggy, offering a flat Rs.75 on first order and then free deliveries for orders above Rs.200.
And Zomato which doesn’t do deliveries for most restaurants on its platforms but gets restaurants to throw discounts to be listed on their platform and be seen as affordable options. Zomato probably throws lesser discounts compared to FoodPanda and Swiggy. A flat 15% OFF on first order.
But none of these companies seem to have gotten it right though. All of them are in losses. So what went wrong? First, Unit economics. They burn the cash most. Say FoodPanda delivers an order for Rs.29 (their usual rate). And the restaurant pays them a commission of 15%. And the delivery guy is paid 24000 a month including incentives and does 10 orders a day. That would mean the deliver guy gets paid Rs.80 per order. Now what foodpanda gets for this order. Say order value is Rs.150. 15% of that would mean Rs.22.5. And the customer pays Rs.29. That makes it Rs.51.5. Which would mean a loss of Rs.29.5. Negative margins. On top of it they throw discounts which burn their pockets even deeper. And there are fixed costs to talk about. And staff costs. Looking at all these figures when do you even think FoodPanda will break even? Same goes with Swiggy and Zomato. And most of other startups Faasos, Freshmenu etc. Many startups like Tinyowl though seem to be doing well initially end up shutting shop for the same reason. But they say their customer base grows. What customer base? Ones who will run to any other company if they were offered the product for Rs.1 less? I mean, what’s the point! Probably that is what investors realized after crores and crores of investments and losses. They decided to stop investing in FoodTech space for a while. Until unit economics are sorted, future doesn’t look bright for food tech companies. However major they are like FoodPanda.
There were news that FoodPanda was planning on existing India, but the company came forth and denied all such rumors. And in turn they also made a claim that they’d make India one of their top 3 markets. How? Remains to be seen.
Swiggy on the other hand is said to be in talks to raise at least $50 million (around Rs 325 crore) in fresh funding, as it looks to beef up its war chest to take on bigger rivals Foodpanda and Zomato. In Indian market atleast according to FY2015-2016 Swiggy is behind FoodPanda and Zomato. Zomato’s revenue from India business was around Rs 90 crore in that financial year. Foodpanda India’s revenue was Rs 37.8 crore while Swiggy posted nearly Rs 24 crore revenue in 2015-16. So obviously it would need more money to beat the competition.
There are certain things that FoodPanda does differently. Like breakfast delivery. UberEats, Deliveroo and FoodPanda recognise what’s claimed to be the day’s most important meal. That is breakfast. Most of the professionals are always in a run to reach office or catch the trains in the morning. So they end up starting their days with just a coffee. This in a way also affects their performance. You know after breakfast is a meal that shouldn’t be skipped. So these companies are investing real efforts into making breakfast available to all Indians. That certainly is a good thing.
Customers too - As if the convenience of getting your doorstep wasn’t enough, why look for discounts? Leave the poor companies alone!
Well a few of these companies did try differently. But apparently none of them worked out. Like a company which would let customers place order that would combine items from multiple restaurants and deliver as a single order. Obviously burning their hands with it made them realise it was time to shut shop. And so they did.
And as if that wasn’t already killing foodtech space in India, Google made its entry with Areo. Now Google has tech. Google has customers. Google has money. Does that mean bad days for all these food tech companies? Let’s wait and see.
But there's been a slight change in the trend since the beginning of 2017. Investors are tightening their reserve and are letting money into food tech startups like the latest fingerlix investment. Good times or bad times - we will figure out soon.