 "Finding the recipe for success")
The food technology start-up segment in India has been the talk of the town for quite some time having attracted huge investor interest. According to Tracxn, a company that provides data on start-ups, about Rs 467 crore has been invested in the sector in 2015, with Zomato alone accounting for Rs 320 crore. Investor interest notwithstanding, the crowded food technology start-up sector appears to be under severe stress with the exit of a number of high-profile players and large-scale layoffs. Over the past two months, SpoonJoy, a Bengaluru-based food ordering app, has stopped operations in Delhi and another food tech start-up, Dazo, shut shop barely a year after it started operations. Both SpoonJoy and Dazo were backed by deep pocketed investors: SpoonJoy is backed by Flipkart co-founders Sachin Bansal and Binny Bansal as well as Abhishek Goyal, a co-founder of Tracxn. Dazo's early investors included Amazon India chief Amit Agarwal, Google India chief Rajan Anandan, TaxiForSure's Aprameya Radhakrishna and Alok Goel, former Freecharge chief executive who recently joined venture capital firm SAIF Partners.
There are quite a number of issues casting a grim shadow over what was a bustling sector only a year ago. The lack of product differentiation, high customer acquisition costs, heavy discounting, the absence of a technology roadmap and inadequate logistics infrastructure have worked together to stall the initial bull-run enjoyed by players in the segment. Some analysts say the lack of product differentiation in a crowded marketplace to be the biggest challenge impacting the prospect of food technology start-ups. "The sector has too many players with no differentiation to offer. It's a classic case of too much attention and too many people doing the same thing," says Saurabh Kochhar, co-founder and chief executive officer, India, and CBO Global, foodpanda.
Rishi Khiani, founder and managing director, Scootsy, echoes similar sentiments. "The lack of sustainable differentiation is a key challenge . "Everyone's carrying the same restaurants and the consumer veers towards the platform that offers the best discount resulting in zero brand loyalty and stickiness." Kochhar of foodpanda points out that the sector has been plagued by issues that are unique to India. For instance, in India foodpanda has been hit hard by widespread false restaurant listings and fake orders. The company is addressing these issues aggressively. "The company is carrying out audits and has put in place a strong on-boarding process for restaurants who want to partner us. Issues regarding false listings and fake orders are unique to India predominately because of the large scale of the market and the mindset of some sections of people," says Kochhar.
While players such as foodpanda are making a serious effort to clean up their platforms, they are also working to make the food ordering and delivery process more transparent by integrating technology across the value chain. foodpanda, for instance, is handholding its partners to ensure they are up and ready to handle any surge in orders. To beef up its delivery arm, foodpanda, which is present in 200 cities with 12,000 restaurants on its platform, has cobbled together a 1,500-strong logistics team. Kochar says that having its own delivery team has helped the company get on board restaurants that do not offer delivery services. Having its own delivery services has also helped foodpanda improve reliability and enhance customer retention. The company is using proprietary tools and technology maps to track deliveries.
Scootsy too recognises that delivery is the biggest pain point in the sector. So it is working to have some control over that part of the chain. Scootsy's Khiani says, "Many hyperlocal players face issues with the last-mile delivery as they don't control the logistics. This results in a lack of control over the delivery experience and the quality of food delivered. Customers are then left grappling with delays, badly delivered packages and poorly trained delivery personnel. We control the last mile delivery with our own logistics fleet. So there is a sense of ownership of the entire ordering and delivering process."
Scootsy has an automated order placement process with vendors, wherein they are notified of an order in real-time. A call centre team liaisons with vendors for order fulfilment. The company has also deployed a customer relationship management platform that supports customer profiling and recommendations, allowing Scootsy to offer a personalised experience to customers. The company has deployed GPS-activated smartphones across its rider fleet to enable real-time tracking of deliveries. Orders are relayed to the delivery hubs which automatically allocates them to the fleet on the ground.
With technology eating up the bulk of the investments made by these players, most of them are grappling with cost pressures, which in turn is forcing them to cut down their workforce and put expansion plans on hold. A recent blog posting by Deepinder Goyal, founder and chief executive officer of Zomato, announcing a series of layoffs across markets goes to highlight how difficult it is to scale up in the food business. The blog post says, "The countries we entered in the recent past have not been working with our existing model of collecting content and building community relations - alternative models will need to be identified and implemented. We have a few ideas that we will be piloting in selected few regions, right away. Over time, as we fully transition, we will need leaner content teams across the world."
Zomota is not the only player thinking of reviewing the business model. Another key player in the sector, TinyOwl, is in the process of restructuring its business and has reportedly laid off about 100 employees in the business development team in late August 2015. For now, the company, present in six cities, has frozen its expansion plans and is focusing on strengthening its position in markets where it is present. In a bid to cut costs, TinyOwl has completely outsourced the last-mile delivery business to partners such as Roadrunnr, Opinio and Shadowfax. With this, the company hopes to reduce its operational costs by about 50 per cent.
With over-crowding and relentless discounting, a handful of smaller players have quit the business, leaving the field open to those with deep pockets. Not that the game is easy for brands with money muscle. The initial burst of expansion, therefore, is paving way for consolidation, which, the players say, will help the sector mature. foodpanda's Kochhar puts recent developments in the sector in perspective when he says, "A lot of people are thinking that the food industry itself is in the doldrums, but that is not the case. The market continues to be exciting with all the micro elements including demographics (young working population) being in favour of food technology start-ups."
For online food aggregator platforms to be successful in India there has to be an algorithm to interpret customer feedback, monitor trends and make predictions, minimising risk and allowing for experimentation. By adopting technology, you're embracing the idea of being able to try things and gather data. Customer autonomy and choice is paramount in today's food tech scene.
Food tech is here to stay. The double digit growth year on year is a testament to that. But due to overlapping of similar models, it will boil down to the survival of only the profitable. At present the cash strapped players have decided to outdo competition by offering heavy discounts. But pricing by itself may not be a deciding factor. It will play a crucial role, especially for those who tend to use these platforms more often than others, but in the long run it is not a sustainable business model. It's the customer experience that will be the concluding parameter - right from simplicity of placing an order to a quick turnaround time and the quality of the food. Brands that get these basics right creatively will emerge winners. For the industry, a customisable model, maintaining popularity among consumers who enjoy creating their own choices and combinations will be a key task. Thanks to production technology and customer feedback algorithms, firms can remain responsive to customer demands.
On the lines of e-commerce and hyperlocal sectors, food-tech will witness several prominent angels and VCs funding on prioritised scale and growth over basic business fundamentals. This euphoria from investors will largely be driven by fear of missing out. Overcrowding in the sector and squeeze in capital due to the lack of funding is going to lead to consolidation. Surviving players will focus on carving a brand with a loyal customer base while remaining profitable. Packaging, logistics, delivery and taste are going to be the factors that will allow brands build a distinct proposition. In the long run, to attain a competitive advantage, a strong supply chain and the use of analytics to understand and predict consumer behaviour in high intensity zones will be key.
There are quite a number of issues casting a grim shadow over what was a bustling sector only a year ago. The lack of product differentiation, high customer acquisition costs, heavy discounting, the absence of a technology roadmap and inadequate logistics infrastructure have worked together to stall the initial bull-run enjoyed by players in the segment. Some analysts say the lack of product differentiation in a crowded marketplace to be the biggest challenge impacting the prospect of food technology start-ups. "The sector has too many players with no differentiation to offer. It's a classic case of too much attention and too many people doing the same thing," says Saurabh Kochhar, co-founder and chief executive officer, India, and CBO Global, foodpanda.
Rishi Khiani, founder and managing director, Scootsy, echoes similar sentiments. "The lack of sustainable differentiation is a key challenge . "Everyone's carrying the same restaurants and the consumer veers towards the platform that offers the best discount resulting in zero brand loyalty and stickiness." Kochhar of foodpanda points out that the sector has been plagued by issues that are unique to India. For instance, in India foodpanda has been hit hard by widespread false restaurant listings and fake orders. The company is addressing these issues aggressively. "The company is carrying out audits and has put in place a strong on-boarding process for restaurants who want to partner us. Issues regarding false listings and fake orders are unique to India predominately because of the large scale of the market and the mindset of some sections of people," says Kochhar.
While players such as foodpanda are making a serious effort to clean up their platforms, they are also working to make the food ordering and delivery process more transparent by integrating technology across the value chain. foodpanda, for instance, is handholding its partners to ensure they are up and ready to handle any surge in orders. To beef up its delivery arm, foodpanda, which is present in 200 cities with 12,000 restaurants on its platform, has cobbled together a 1,500-strong logistics team. Kochar says that having its own delivery team has helped the company get on board restaurants that do not offer delivery services. Having its own delivery services has also helped foodpanda improve reliability and enhance customer retention. The company is using proprietary tools and technology maps to track deliveries.
Scootsy too recognises that delivery is the biggest pain point in the sector. So it is working to have some control over that part of the chain. Scootsy's Khiani says, "Many hyperlocal players face issues with the last-mile delivery as they don't control the logistics. This results in a lack of control over the delivery experience and the quality of food delivered. Customers are then left grappling with delays, badly delivered packages and poorly trained delivery personnel. We control the last mile delivery with our own logistics fleet. So there is a sense of ownership of the entire ordering and delivering process."
Scootsy has an automated order placement process with vendors, wherein they are notified of an order in real-time. A call centre team liaisons with vendors for order fulfilment. The company has also deployed a customer relationship management platform that supports customer profiling and recommendations, allowing Scootsy to offer a personalised experience to customers. The company has deployed GPS-activated smartphones across its rider fleet to enable real-time tracking of deliveries. Orders are relayed to the delivery hubs which automatically allocates them to the fleet on the ground.
With technology eating up the bulk of the investments made by these players, most of them are grappling with cost pressures, which in turn is forcing them to cut down their workforce and put expansion plans on hold. A recent blog posting by Deepinder Goyal, founder and chief executive officer of Zomato, announcing a series of layoffs across markets goes to highlight how difficult it is to scale up in the food business. The blog post says, "The countries we entered in the recent past have not been working with our existing model of collecting content and building community relations - alternative models will need to be identified and implemented. We have a few ideas that we will be piloting in selected few regions, right away. Over time, as we fully transition, we will need leaner content teams across the world."
Zomota is not the only player thinking of reviewing the business model. Another key player in the sector, TinyOwl, is in the process of restructuring its business and has reportedly laid off about 100 employees in the business development team in late August 2015. For now, the company, present in six cities, has frozen its expansion plans and is focusing on strengthening its position in markets where it is present. In a bid to cut costs, TinyOwl has completely outsourced the last-mile delivery business to partners such as Roadrunnr, Opinio and Shadowfax. With this, the company hopes to reduce its operational costs by about 50 per cent.
With over-crowding and relentless discounting, a handful of smaller players have quit the business, leaving the field open to those with deep pockets. Not that the game is easy for brands with money muscle. The initial burst of expansion, therefore, is paving way for consolidation, which, the players say, will help the sector mature. foodpanda's Kochhar puts recent developments in the sector in perspective when he says, "A lot of people are thinking that the food industry itself is in the doldrums, but that is not the case. The market continues to be exciting with all the micro elements including demographics (young working population) being in favour of food technology start-ups."
For online food aggregator platforms to be successful in India there has to be an algorithm to interpret customer feedback, monitor trends and make predictions, minimising risk and allowing for experimentation. By adopting technology, you're embracing the idea of being able to try things and gather data. Customer autonomy and choice is paramount in today's food tech scene.
Food tech is here to stay. The double digit growth year on year is a testament to that. But due to overlapping of similar models, it will boil down to the survival of only the profitable. At present the cash strapped players have decided to outdo competition by offering heavy discounts. But pricing by itself may not be a deciding factor. It will play a crucial role, especially for those who tend to use these platforms more often than others, but in the long run it is not a sustainable business model. It's the customer experience that will be the concluding parameter - right from simplicity of placing an order to a quick turnaround time and the quality of the food. Brands that get these basics right creatively will emerge winners. For the industry, a customisable model, maintaining popularity among consumers who enjoy creating their own choices and combinations will be a key task. Thanks to production technology and customer feedback algorithms, firms can remain responsive to customer demands.
On the lines of e-commerce and hyperlocal sectors, food-tech will witness several prominent angels and VCs funding on prioritised scale and growth over basic business fundamentals. This euphoria from investors will largely be driven by fear of missing out. Overcrowding in the sector and squeeze in capital due to the lack of funding is going to lead to consolidation. Surviving players will focus on carving a brand with a loyal customer base while remaining profitable. Packaging, logistics, delivery and taste are going to be the factors that will allow brands build a distinct proposition. In the long run, to attain a competitive advantage, a strong supply chain and the use of analytics to understand and predict consumer behaviour in high intensity zones will be key.
Siddarth Bharwani
Director, Jetking
Director, Jetking