Food Commerce Startups - Be Like ‘Phoenix’

India is a land that boasts of some of the finest cuisine as diverse as its culture and traditions. Known for its tastes and aroma Indian cuisine varies but there is one constant - it is simply delicious. Be it our ‘ghar-ka-khaana’ or the mouth-watering ‘street food’, we seem to never get bored by eating.

No wonder so many startups began cropping up after the mobile application boom, dealing in food. Interestingly, new age entrepreneurs were able to raise more than $200 million from venture capital firms and other investors. The digital scenario saw about 600 new applications and websites gaining from the funding. Also, these food- related apps provided umpteen options to young students and working folks, staying away from home that they became an instant hit.

First came in, groceries shopping options like PepperTap, Grofers, Big Basket and Farmstand, offering something unique, right from home grown veggies to in-season fresh fruits. They taught us to shop from the comfort of our homes without stepping out in the sun. Again, they found huge success in altering the habit of Indians, who would only buy, if they get to compare or bargain.

Soon after, came in food aggregator apps, such as Zomato and FoodPanda, which lent a hand in looking for nearby restaurants and cafes. They started in 2008 and were able to gather funds from Info Edge, Sequoia, Tamesak, and Goldman Sachs, Rocket Internet and others became dominant startups in the segment with 5,000 restaurants in India advertising on their site. They were easy to handle and free of cost, that they quickly became the must have apps on anybody’s smartphone. As these brands grew bigger names, they began diverting their synergies towards the ‘food delivery services.’ This venture looked right and lucrative but was heavy on labor cost and very restrictive.

It wasn’t too difficult to attract customers or get orders though, it is always difficult to deliver a customized and still standardized product with 30 minutes. It is no joke to manage a business which gets affected with so many uncertain factors like traffic, whether, festivals, processions, crops. However, there still came a point when they grew big enough to compete with the time-tested ‘dabbawallas’ but despite options like ordering at the last minute their growth rate was sluggish. Ever though, most of these companies had acquired colossal funding in the beginning, their survival in the long run seemed impossible as margins were short and profits were meagre.

The initial gold rush observed by Indian entrepreneurs seemed to be ending. India, which was being touted as the next China and global investors who were eager to pump billions of dollars to capture the new market now began to face the reality, that if any app is launched it should have it’s a ground-breaking USP and also a very workable revenue-model. Theses digital business should work more on customer loyalty than customer acquisition, the focus should be more on food than the tech part and so on.

This rush to invest in an ‘idea’ created its fair share of irrational exuberance and even half-baked business models went ahead with venture capital with scant attention to the ground realities. It seems decision-makers got misled due to the excitement of the investors and the mass belief of food startups to make it big in India. In a way, the media too can be held responsible for distorting reality by constantly celebrating successes and ignoring failures. Everyone seemed to be lured the rosy idea, just as customers are lured with pictures of tasty snacks towards being satisfied and enticed with discounts to come and purchase.

They failed together but most of them saw a demise because of different reason such as some failed to raise second or third round of investment. Others, shut down under the pressure of scaling up and failed at the cusp of food and logistics. Yet others became a victim of underestimating the food business which calls for optimizing on pricing, managing cost and quality at the same time. Problem with the startups were reckless. Unlike selling T-shirts or gadgets online, the food business needs a deep understanding of the psyche of the customer.

Many players in the domain felt the crunch, such as Dazo- Bangalore based startup, PepperTap, Slurpyn, TinyOwl, Delhi based - Langhar, SpoonJoy, Eatlo, Ola Café and so on and so forth. Even Zomato had to cut back, on January 11, 2016 it announced shutting down business in four cities—Coimbatore, Indore, Kochi and Lucknow. It only runs a food ordering business in 10 cities now. Several others also had to lay-off employees, cut back expansion plans and have had to shut shop as they ran out of money.

However, one thing is definite that these food-tech startups which have failed will be back for sure, in some form or the other as the opportunity in the sector is huge. As urban India is mushrooming with nuclear, double-income families, as well as a large influx of young singles, there is enough market to attract new food ecommerce ventures. Swiggy, which recently raised a fresh round of funding, does about 15,000 orders a day and Zomato does 13,000. Overall food tech startups are just beginning to get organized. There are also a few kitchen models that are being worked upon to leave out the discount model which is currently being used. It is to enter into arrangements with restaurants. This way the margins can be as high as 60-65% and the customer experience is expected to be better too. A third model which is being discussed in the online food space is ‘cloud kitchen’. Startups such as Hola Chef, Fresh Menu, Bhukkad have already gone on board with this model in which they have their own in-house kitchen and own an army of chefs along with the delivery department.

Overall, the food commerce is a capital intensive field and the negative news hovering above it has not warded off the line of investors. It is definitely not a bubble that is waiting to burst, instead the market will soon bounce back in a few months and will certainly see a lot more funding. It is just the initial phase and the market seems to working on re-align itself with a plethora of hyper local online demand for services on the rise. The next big thing after the regular ecommerce retailers like Amazon, Flipkart and the food startups like Box 8, Yumist and Chaipoint, which seems to be driving investors crazy is Travel tech and wellness apps that would help balance out the overflowing investment. Sharing failure stories is also enhancing the learning experience of the young minds.