A variety of online food delivery start-ups have come up catering to niche markets. Can they scale up?
IT was a request made by cricketer Robin Uthappa that led to the launch of iTiffin in Bangalore, an online food delivery start-up that sells scientifically-designed healthy meals with the recommended daily doses of vitamins, minerals, protein and fats. “My partner Ryan Fernando and I were running a nutrition clinic in Bangalore when we got a request from the cricketer. We then launched the portal realising that the ordinary city dweller too has the same requirement for healthy meals but is unable to put it together on her own as she is unaware of the nutritional specifications,” says Tapan Kumar Das, CEO and co-founder, iTiffin. Today, the online food takeaway is getting one lakh orders per month.
The online food delivery business has been cooking up a storm lately. If restaurant listing app Zomato and online food delivery pioneer FoodPanda were the early birds, start-ups such as TravelKhana, Mera Food Choice (MFC), iChef, cookfresh, iTiffin, Fly By Knight, and many more today are catering to hundreds of customers, bringing the online food delivery business into the spotlight. Only last month came the news that Rocket Internet funded Foodpanda had acquired rival JustEat, thus expanding its reach to 200 cities and over 12,000 restaurants in the country. Soon Zomato announced it would take orders for food delivery, starting this March. Again, in January, Bangalore-based TapCibo raised seed funding to deliver lunch to office-goers. Meanwhile, Mumbai-based Holachef has raised around $323,000 in seed funding led by early stage investor India Quotient.
Despite accounting for less than 5% of the total e-tailing business which stood at $2.3 billion in 2014, online food players have managed to create enough buzz. According to VCCEdge, the financial research platform of VCCircle.com, while only one private equity and venture capital deal took place in 2014, four mergers and acquisitions deals worth $21.24 million were sealed the previous year. “Food business is growing at a rapid pace and is seeing a lot of acquisitions happening in comparison to pure e-commerce business. Global players such as Foodpanda are actively acquiring businesses across the globe. And we should not forget that we eat food daily but we don’t buy a TV or a mobile every day. So I think there is no stopping the food business from expanding vastly in the future,” said Piyush Goyal, managing partner, Palaash Ventures, a Delhi based venture capitalist firm.
Rohit Chadda, co-founder and managing director, Foodpanda, says there are multiple reasons behind the online food business tasting so much success. “Women now spend more time at work and less time cooking a variety of dishes. Also, in most cases, cooking is out-sourced. Secondly, fine-dining is more expensive compared to delivered food. And instead of scanning through the leaflets that comes with the newspaper, people prefer the mobile app as the one-stop solution,” said Chadda.
Even as ordering food online is catching on in urban India, especially in the metros, the category is still at a nascent stage. “Food as a category online is not very big yet. While the sector has managed to gain traction that is yet to translate into revenues. Not to forget that the business comes with its own set of challenges,” said Ankur Bisen, senior vice president, retail and consumer products division at Technopak, a management consulting firm.
The online food space has two to three business models. While sites such as Zomato function as an online restaurant guide, Foodpanda, Deliverychef, Mealsonwheels and TravelKhana, apart from acting as listing sites also run delivery services for restaurants. Lastly, the sector has niche players who run their own kitchen.
Like in any other business, the quality of the product is most important. The fact that the shelf-life of cooked food or even of ingredients is very short, means quality, or lack of it, can make or break the image of an online company instantly. Agrees Das of iTiffin who says: “We do not operate as a restaurant, where one can simple place an order for a dish. We take bulk orders, either for a week or a month. This process helps us keep track of the total number of meals that need to be prepared in a week/month and helps in reducing wastage while maintaining quality.”
As for companies such as TravelKhana and Foodpanda, adherence to timelines is crucial. “Not to forget, the very idea of starting the business was to provide fresh meals to railway passengers and if we fail in that, we would surely lose out,” says Pushpinder Singh, CEO and co-founder, Travelkhana.com. Singh’s venture, which has seen Google India head Rajan Anandan picking up minority stake, is an online food takeaway service that delivers train passengers food from restaurants of their choice.
Even as the category has seen the entry of many players, the delivery segment of the business is growing faster rate than online businesses that run their own kitchen. Although orders are taken online thus streamlining the process, the cost of setting up a kitchen pushes up the overheads.
A listing-and-delivery-only company is leaner comparatively. “Also, when you run your kitchen, the margin is less compared to that of delivery service. This is the reason why more players are entering the delivery segment,” added Chadda of Foodpanda. In addition to market leaders such as Foodpanda, the Indian online delivery sector has other players such as Zomato, Titbit, Deliverychef, Grabagrub, Mealsonwheels, Bigbite, among others. For the record, players in the delivery business earn as much as 40% margin per order compared to 25% per order in case of companies that own restaurants.
To be sure, each player is identifying a specific niche in the market and catering to it in its own special way. FlyByKnight is one such website which sells essential items right from a sandwich to a burger to even cigarettes. “I started the website in 2012 after quitting my job in Google.
The portal not only targets students who live on their own, but also professionals who tend to come late at night to find that even the nearest dhaba has closed for the day,” said Neha Jain, founder and director, FlyByKnight. Based in Mumbai, the e-commerce portal runs its services from 9 pm till 5 am.
Every start-up is now trying its best to take its business to the next level. “Like any entrepreneur, my future plans are big,” says Gurmeet Kochhar, founder of SpiceBox, a tiffin service that provides delicious home style food to individuals and companies all across Mumbai. Kochhar says he plans to introduce a subscription based model for dinner and breakfast in addition to entering new cities such as Delhi, Bangalore, Chennai and Pune. “We are currently testing the beta version of the existing app which we plan to launch by end of February. Moreover, we have developed the blueprint of a separate app for on-demand food delivery business which we plan to introduce soon,” explained Kochhar.
SpiceBox is not the lone ranger, online players such iTiffin, TravelKhana too have their mobile apps.
Singh of TravelKhana says that having established the business, now the focus is on expanding the reach. “We currently provide services to 150 cities and plan to add 100 more cities in one year’s time,” he said.
Bisen of Technopak however points out that this is just the first level. With the average ticket size R80-500, taking the business to the next level by scaling up operations and reaching profitability is a long walk from here. “The word niche itself implies that one is targeting a limited number of consumers or a particular set of customers. Thus, these online players will always operate in a restricted market, which will always make it difficult for them to enter every kind of city,” he added.
With almost all the platforms being self-funded at this point in time, roping in a private equity firm, or an angel investor is definitely on the radar. After raising $1 million in seed funding from an Indian business family last year, iTiffin is now looking to raise $5-8 million. Similarly, Mumbai based ichef is planning to raise R10 million soon. TravelKhana is already in the process of raising $3-5 million. Chirag Arya, co-founder, ichef.in, which sells ingredients for gourmet recipes listed on its website, is emphatic that investors will definitely come if they see value. “If online food companies continue to focus on operational aspects of the business which includes maintaining the quality of the product apart from being able to create a market for their products, there is no reason why investors should not be interested,” he says.
For every start-up that runs a successful business, there are many that fall by the wayside. For instance, Imly.in, a start-up that connected home-chefs with curious foodies, shut shop last year as the business model turned out to be unviable. “Getting more funds has got nothing to do with food. The entire game of funding is based on scale and when a company is targeting a select set of consumers, achieving scale becomes difficult. So raising funds can be difficult for these online businesses,” said Ashvin Vellody, partner for management consulting with KPMG in India, a financial services and business advisory firm.
However, niche players have a different tale to tell. With most of them running a subscription service, they claim that getting business has not been difficult so far. While online tiffin service Spicebox claims to have more than 1000 monthly subscribers, Das of iTiffin says that the website clocks more than a lakh orders per month and sites such as ichef.in which sells ingredients online, claim to sell 50-60 boxes per day. “Our recipes are designed in a way that even someone with not much experience in the kitchen can cook them. There’s a growing number of people who love cooking and are willing to pay for fresh ingredients and the convenience of having them delivered to their doorstep. We’re doing a few hundred orders a week,” said Raghav Kohli, co-founder of cookfresh.in, a website which sells ingredients for gourmet food.
Till now, these businesses have relied on word-of-mouth and social media to get them the customers. But with everyone working on ‘mission expansion’, this too many change. While biggies such as Zomato and Foodpanda have already taken to television and print apart from digital to catch the attention of consumers, niche players believe in taking one step at a time. “We are advertising on sites such as Zomato. We also plan to use radio soon. As for using traditional media, that will happen after we reach a certain scale and have a pan-India presence,” said Arjun Sethi, founder, Midnight Munchies.
Agrees Kochhar of SpiceBox, who says social media is behind the popularity of his venture. “Not only are we active on Facebook, we are also there on Twitter and Instagram. In fact, our presence on LinkedIn has helped us clinch many corporate deals,” he said.
Given that the online food business has just begun to gain traction, there is still space for all kinds of business models to come up. “Just like any other category, the online food business too will have a mix of players. While delivery based services is expected to grow at a faster rate, niche players too will find their ground,” said Vellody of KPMG in India. But sooner rather than later, consolidation will start happening as the more nimble ones gobble up niche players as part of their expansion strategy. Foodpanda has set the ball rolling with its recent acquisitions. Till then, too many cooks are welcome.