With a substantial rise in daily order volumes and plans for expansion, food tech players are steadily turning the market around .
The Indian food tech sector, which witnessed a rather dull last few years, has bounced back and how. From daily order volume of 3.7 lakh in 2017, as analysed by RedSeer Consulting, the number has increased to 15 lakh as of September 2018. Clearly, the appetite for food tech is growing, not just of consumers but investors, too. After a phase where start-ups such as Tiny Owl, Yumist and Dazo were forced to shut down operations, things are now beginning to look up.
“In the last six to eight months, many smaller players have come in, while cab aggregators have extended their services to the food aggregation space. With Ola acquiring Foodpanda and Uber launching Uber Eats, the competition has intensified in the market,” says Rohan Agarwal, engagement manager, RedSeer Consulting.
Orders, served hot
Swiggy is the market leader in the food aggregation space, clocking roughly six lakh daily orders (industry estimate), while Zomato is not far behind with close to 5.2 lakh daily orders. Uber Eats, given its expansion spree, has managed to topple Ola’s Foodpanda with about three lakh daily orders, while the latter sees close to 2.5 lakh orders per day through its app and website.
In October, Foodpanda launched its delivery service in 30 new cities, taking its total to 50 cities across India. By the end of November, the food tech platform hopes to deliver food in 100 cities. Foodpanda was acquired by SoftBank-backed Ola in December 2017. At the time, the cab hailing platform announced it would invest $200 million in its food aggregation business. However, Ola’s competitor has turned out to be a formidable rival in this space. Launched in May 2017, Uber Eats set its eyes on customers in the underserved markets and lured them with hefty discounts and first-order offers. At present, Uber Eats is available in 37 cities in India and Southeast Asia, and claims to be growing by 50% month-on-month. “At any given geography, consumers can choose from more than 30 cuisines on an average,” says an Uber Eats spokesperson.
The more established players, Zomato and Swiggy, have also been expanding their footprints. Zomato, in particular, is eyeing the tier II-III cities for growth. “We are present in 59 cities in India. Our short-term goal is to double down on our growth by expanding to more tier II-III cities in India and building depth in tier I markets,” says a Zomato spokesperson. “We have expanded to 37 such cities in the past four months, and the response has already exceeded our expectations.”
Meanwhile, Swiggy delivers food in 45 cities across India through its delivery fleet of over one lakh riders. The aggregator claims to have an association with more than 45,000 restaurants.
Not always delectable
No matter how encouraging the trend, the fact remains that loyalty evades the food tech space. Consumers flock to the platform offering the best deals or discounts. According to industry estimates, a discount of 20-50% is prevalent in the market, amidst which it is very difficult for aggregators to command a loyal base.
Food aggregators get a lion’s share of their revenue through the commission charged on orders. Depending on the order size and the city, aggregators charge 15-30% commission to the restaurant preparing the food. “The average order value in developed markets would be around $20-$30, while in India it is around `240,” informs Agarwal. Evidently, recovering the cost of operation remains a challenge. Apart from commissions, in-app advertising and loyalty programmes are the other sources of revenue for the aggregators.
Some of them have started hosting cloud kitchen networks to get an upper hand. Consider the Swiggy Access programme — which allows its restaurant partners to set up kitchen spaces in areas where they don’t have a presence. Launched a year back, it seems to have worked for the company. “We currently have Swiggy Access kitchens in Bengaluru, Delhi, Kolkata, Mumbai and Hyderabad. Around 70% of our partner restaurants are looking to work with us in more than one Access,” says Vishal Bhatia, CEO, new supply, Swiggy. In the long run, Swiggy intends to deliver as much as 20-25% of its orders from these delivery-only Access kitchens.
Furthermore, these platforms have been working on bringing down operational costs by making one rider deliver multiple orders on the same stretch, charging restaurants for discounts and charging customers for delivery for small ticket orders. Whether a sustainable business model can be arrived at once the discounting shrinks, is what analysts are debating on.