 "Saurabh Kochhar")
Foodpanda, the global online food ordering platform, promoted by German investment firm Rocket Internet AG, recently saw a change of management in India, amid reports of serious trouble with its business processes and governance. Allegations included fake restaurants, fake customers and related-party deals by top managers. Saurabh Kochhar, the new chief executive officer for India, in a candid interview with Ranju Sarkar and N Sundaresha Subramanian, on how they have tackled these issues and strengthened controls. Edited excerpts:
In recent media reports, several governance issues have come up. What do you have to say about these?
As a country, we are going through this change where consumer experience is being lifted. I am privileged to be at the forefront of it. This comes with the winner’s curse; we face every problem before everyone else. I am not denying there were problems we faced six to 12 months ago. We unearthed and systemically solved these. What Foodpanda is today is completely different than what it was six months ago, in terms of our ability to handle these issues.
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The biggest thing when I came in was around integration. We had just gone through two acquisitions (TastyKhanna in November 2014 and JustEat in January 2015) and the biggest challenge was integrating these three different teams and processes.
How did they manifest as a problem?
It was more about how do we now streamline. Foodpanda was two years old, JustEatwas older. We had to redefine how we went ahead in terms of people, process and product. Find what’s the right model and right processes. There was obviously some value in what people had followed in nine years versus what we had done in two years.
Didn’t you anticipate these integration issues? Why did you acquire?
These acquisitions gave us scale, reach, and matured processes.
You are a global company. Why do you need to learn processes from others?
Every local regulation is different. Our partnership and our agreements are different. What remains similar is the experience we deliver to the customer but the mechanics of how it works on the ground is different. A perfect example is our delivery system. Singapore has a code for a set of four houses. India has one pin code across four hundred thousand people. People somehow fail to understand the complexity of what goes behind the scenes. The front-end is seemingly similar but the engine is very different.
Was it all about scale?
It was also about getting a direction and set-up for scale. We have strengthened our core team and hired key people from Mckinsey, BCG and Airtel.
What is the mandate for the new team?
We wanted to focus on customer experience. That means multiple things, investments into customer processes. We have insourced a lot of our outsourced processes. We have invested in back-end technology and partners. Ordering is completely automated.
Did you have problems as late as August?
Not denying there were problems. If we have to offer refunds, we do that because something did not go right.
People are questioning the number of restaurants…
There was an issue about that. We are now tightly managing our inventory, which means there will be restaurants that fall out on a monthly basis.
Were there phantom restaurants?
This is one of the reasons why we have closed several restaurants over last year. When we integrated, multiple restaurants came in and it needed cleansing. That is the cleaning process we have done over the past few months.
The issue seems to be, you are not doing physical checks. We now do a mystery audit for every new restaurant.
How many restaurants' mystery audits are complete?
We only started a few months earlier. We are covering 500-1,000 restaurants every month. There are allegations that only 2,000 of the 12,000 restaurants are real. That is not…clearly not. We know. We do business. We get invoices.
Why did Rohit Chadda leave? Was there a serious issue of governance?
He did not leave on these issues. He stepped down because…he didn’t find the comfort in the new structure as part of the integration. He took this call for personal reasons.
He left on his own…or was he asked to leave?
He was in an exit mode. He quit eventually in August.
In these two acquisitions, were there disgruntled people? Were there some differences? Did they feel short-changed?
The reason was more aspirational — aspirations which were not fulfilled.
This integration issue — can we explain in more granularity?
At the top level, there was some discontent between Rohit and Shachin Bharadwaj. They didn’t have the best of equations, to be frank. Which is why it necessitated an external party to come around and streamline things. That’s where the root of things started. And, we completely went into a ‘solve everything’ mode.
Why did they bring you in? What is your claim to fame?
I took Rocket’s Printvenue business to a scale nobody thought it would.
Zomato has entered food ordering. How do you plan to protect your turf?
There are restaurants that you look to eat-in versus where you go-out-to. Zomato's big segment is where you want to go-out-to, and not necessarily where you want to eat-in from.
Second, it's a market of on-ground execution. It's not about serving people who are online. It's also about getting the restaurants which have been predominantly offline, bringing them up the curve on technology, business process or capabilities.
What's your customer base in India and globally?
We reach out to about 10 million customers in India --reach, not customer base. It’s a different set of customers I reach out to every month. Can't give global numbers.
What do you see are your strengths vis-a-vis a Zomato?
We understand the delivery restaurants because we have had experience with them for over nine years. We are the pioneers in this. We have built the technology to solve for these contingencies and these on-ground issues which will take anybody years to come to. Third, the scale we have achieved. We are multiple times ahead of any of our competitors. Can't disclose the number of orders we do, as we are a listed firm.
Zomato is getting into related areas like table reservations. Will you follow or change your strategy with the entry of new players like TinyOwl, Swiggy?
We have value in focus. There’s a core problem that we are solving. The food market is $300 billion and within that, the food delivery market is $15 bn. We have about 12,000 restaurants in 200 towns but are only scratching the surface.
Was the earlier management under pressure to show scale, like in other firms?
We have two quarterly audits, which cover our entire financials, KPIs (key performance indicators), what is inflated and what is not. The germ of this inflation is you want more money and thereby show a different picture. Most of our money is internal, comes from Rocket Internet.
At some point, your predecessor’s intent might have been in question?
I have nothing which says this could be true because they have been solving problems. It's not that I have come and solved the entire story. These issues were unearthed, and solutions started. Globally, we are only a three-year-old organisation. We are strengthening our control processes. Can't lay a finger on the intent of other people.
Were there conflicts of issues with earlier co-founders floating some other firms?
We have a code of conduct, which has every compliance issue. Probably, when you are a young company, these things you become oblivious to --maybe not the right word. You need to put in those controls, lay it out clearly. For all our new restaurants, we now have a six-eye rule, that three people have to see it before anything is approved.
How have these processes been tightened after the issues cropped up?
We have brought it out in black and white -- what is our code of conduct, what are our financial policies, over the past months.
You are a global platform. One assumes you will have robust processes and SOPs (standard operating procedures). Were they not in place, and evolved after these issues cropped up?
They are ever-evolving. When I talk to you six months later, they would have evolved more. You need to understand the problem we are trying to solve in this business.
I find it surprising for a global platform, that you need to acquire local companies to acquire knowledge, processes and technology.
No, not control processes.
For a global platform, won’t your processes and SOPs be standardised across markets, and so would be your app?
Yes, in terms of how you deal with our customers. But, that is only 20 per cent of our business. The 80 per cent is how we operationalise in real time. For that, we need local knowledge. What we acquired locally is operational processes and not control and customer processes. How do you process the order, how do you deal with him, how do you handhold him -- those are things you need to do locally.
Some of the issues that came up -- was it because you were trying to grow too fast and compromised on your processes?
(After a long pause) The dynamics changed. We have actually had some unanticipated growth. Between January and September, we have grown 10 times in terms of orders, customers. In 2014, we might have grown 2.5 times on a smaller scale. We have grown at a much faster pace, at higher scale but with better processes. So, it’s not that for growth the processes have been bypassed or compromised.
But, some of the issues that have come up, aren’t they related to execution?
They are. But, they are not because of poor execution. When you keep growing, you will face issues you could not have anticipated. We're not trying to hide the issues. We say we are facing these issues and finding solutions.
When will you start making money? When will you break even?
We are well on our way. The focus of the business is sustainability, which means it has to be profitable at a point (laughs).
How much will this clean-up cost you? Have there been any write-offs?
These are issues we saw in six to 12 months and systematically solved. The loss for the business is next to zero, absolutely minimal.
What’s your revenue model? Is it only commissions?
We also do some sponsored listings but it is predominantly commissions, 10-25 per cent, depending on the restaurant and what all services we provide --getting them orders to packaging, delivery, and marketing.
You started food delivery here? Are you doing it on your own & what’s the idea?
Where most guys falter is the last mile. It is critical for us to deliver the right food at the right time. Doing food delivery adds much more reliability on the ground, enables faster deliveries and real-time tracking.
Is Rocket Internet planning to sell some of its businesses here?
Most of those reports are ill-founded. None of these have been confirmed (reports of specific discussion). I am not privy to them (if something is on the block).
What about Foodpanda?
We are very clear. We will stay invested. India is an important part of Foodpanda’s global strategy. We will continue to stay invested and figure our path.
Where does Foodpanda go from here in India? What are the next milestones?
We are still scratching the surface in terms of what the opportunity is and what we have achieved. So, we need to gear up for a much, much (stresses) larger scale. We have the potential to do millions of orders a day and that is where our next milestone is.
What are the interim steps? Is the first target to stabilise the business?
Well, we are not very far. We have been chewing (means stabilising) for the past few weeks. We have to stabilise a bit and then go for another sprint, again.
Has your growth strategy changed? You were earlier discounting a lot…
We are focusing more on the experience bit. Incentives are used as a marketing tool but it cannot be your product or proposition. We don’t offer a discount every Tuesday but every once a while.
