The perfect recipe

VCs and established entrepreneurs understand that the business model of internet-based food firms is extremely scalable and these platforms can be set up without having to invest huge sums of money

Internet and smartphone penetration coupled with a fast-paced life has meant that even dietary preferences have undergone a transformation.

For someone with an erratic lifestyle, constantly changing schedules and frequent travelling, a kitchen at home is of little or no use. At the same time, eating out has become expensive due to various taxes such as VAT, service tax and other miscellaneous costs that are included in the price of the food itself.  A food survey recently stated that patrons save about 20-50% of money while ordering online, compared to the bill they pay while eating out at a plush restaurant. In such a situation online food delivery is a godsend. The home delivery domain itself is likely to grow 30-40% in the next few years.

A quick look at the budding online food industry shows the scale at which such food portals are flourishing. It has diversified itself to a level where new players are launching themselves onto the online platform with innovative ideas, to cater to the needs of the ever-demanding consumer. Online food portals that provide everything from ingredients to a ready meal are an example of this progressive trend.

While the online food space was being dominated by one or two major players till a couple of years back, the last two years have seen the entry of various innovative start-ups. The internet population of the country is estimated to be 25 crore, out of which 10-15% are online shoppers, which indicates the vast potential that the e-commerce industry has in the country.

While the next phase of growth will come from tier 2 and tier 3 cities, the lion’s share of traffic still comes from metros. However, with smaller cities embracing the online food trend, internet-based food players are being urged to widen their reach to every nook and cranny of India.

With increased competition, the online players are coming up with cutting-edge features and improvising their services on a constant basis in order to survive successfully and create a sturdy business for themselves.  While 26% of consumers in the US have ordered food online, the industry is far less penetrated in India which is the primary reason for such high interest in the vertical. Around 49% of Americans agree that technology has affected the way they search  for restaurants. The Indian market, while much smaller in terms of current penetration, is vastly larger with regard to potential which can be seen in the valuations that some of the food portals have been able to receive in the past one year.

The commission charged per order is the major source of revenue for online food delivery portals while the table booking platforms charge on the number of heads seated. Besides this, different platforms also charge restaurants for ads, priority listings and fixed fee for listing them on their website. In order to give their business the much-required online push, food companies in turn need to innovate and upgrade their operations by launching apps for their websites, gaining customer attention by being active on social networking sites and by scaling up their digital marketing.

The increased focus on online food start-ups has also given birth to technology companies that concentrate purely on mass distribution of online food ordering platforms to individual restaurants and earning a fixed technology fee in the process. While such companies are very popular in the developed markets, the revenue-oriented approach of the Indian restaurant owners makes it difficult for similar companies to thrive in India.

Many new entrants in the food industry have caught the interest of venture capitalists. By supporting new start-ups, venture capitalists aim to capture the majorly unexplored online food market of the country. Apart from this, they are also funding start-ups in the eating-out segment.

VCs and established entrepreneurs have recognised the fact that the business structure of internet-based food firms is extremely scalable and can be set up without having to invest exorbitantly. This serves as one major reason for investors to put their funds in start-ups in the online space that have higher probability of earning considerable income in a short span of time.

By Rohit Chadda
The author is co-founder and managing director, Foodpanda.

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First published on: 03-03-2015 at 00:09 IST