FoodTech Startup Report 2017

With the increase of numbers of personal chefs, catering services, box-delivery, pop-up kitchen, on-demand-meals and on-demand-chefs, the demand for the commercial kitchen space in India is diminishing.

There has been a surge of shutdown of foodtech operations in India. More than 150 foodtech startups shut shops in 2016. Is this the test of time where one has to eat the worst dish in the menu to get to the desert? We’ll have to wait and watch.

There was mainly three divisions in the Food and Beverage Industry: Internet restaurants, curated food marketplaces and logistics arm for restaurants. By merging the innovation of technology with culinary knowledge, foodtech startups began running ahead of traditionals services. “The creation of value added services and efficiencies in the supply chain will continue to drive the food-tech businesses”, says Mr Srivats TS, VP of Marketing, Swiggy.  

Areas of Expenses

Real estate, pricing of individual products, raw material and workforce cost, customer acquisition, operational charges are the main areas of expenses for every foodtech startup.

A.                 Expenses of Real-Estate

Real estate availability and price is the primary area of expense  for all retail F&B players. However, startups have created an extremely flexible format to fit into profitable venture. For instance, Chaayos has a variety of shop sizes ranging from 100 sq ft to 2000 sq ft across the country.

Co-founder of Chaayos, Raghav Verma says, “An MNC brand will spend up to Rs 1 crore in setting up an outlet. We open in Rs 20/30 lakh. On an average, it takes a store just three months to break even operationally. We have tweaked a lot of things, the capex model, the product game, allowing us higher margins”.

B. Mode of Expansion

Kiosks, Acquisitions and Cloud Kitchens are the various modes of expansions for FoodTech startups. Meaningful partnerships are also able to drive customers to the brand. “The targeted users through relevant partnerships are early adopters and sometimes influencers and hence can take to your brand much faster and help you grow the business also”, says Aruj Garg founder of Bhukkad.

Acquisition through this channel is much more stronger and sometimes does not cost much.

FoodTech shutting shops or downsized operations

As a company if you have the correct set of outlook and objective, then M&A is easier in any sector. As an organization we have a deep analysis around our revenue planning that aids us to cease any unforeseen circumstances.

The customer went where they saw a better discount and investors saw what was coming. This became a recipe for disaster which delivered to them the closure of their ventures.

                                             Indian FoodTech Startups

Online Food Delivery startups

A plethora of FoodTech startups have started online delivery services in India. TinMen, NomNom, HolaChef, Swiggy, Foodpanda, Zomato are a few of the many food delivery startups in India. Concentrated peak of delivery, unpredictable demand patterns, high cost of operations has led many food delivery startups to shut down. There are a few models which allow the escape from such torments.

A.                 Food Club model: This model has a limited menu and slotted delivery time. This takes out the uncertainties on the arrival of the rate equation, resulting in high FE utilization.

B.     In-house Delivery Person Model: This is the model where an FE is utilized for restaurant duties to improve utilization. In reality, most Indian restaurants work on this model to reduce the labor expenses.

Multinational Fast-Food companies

The last decade has been about the growth of multinational fast food chains. McDonalds, KFC, Dominos and the likes have shaped the food eating habits of people in Tier 1 and Tier 2 cities.

The growth of MNC fast-food chains will become stagnant in the Indian market as people are more conscious of what they eat. Moreover, they are unable to reinvent themselves completely for their DNA remains the same.

Cloud Kitchen

As a consequence of the various expenses of FoodTech startups like rising rental costs and consumers increasingly preferring home delivery to eating-out,

FoodTech founders began to work with virtual kitchens. This strategy is to bolster its presence across the country to increase revenue generation.

Here the startups such as HolaChef, FreshMenu, Bhukkad own the food and delivery part of the business. This gives better margins but the challenge is to build scale with an army of chefs in various cities.

A key trend to look out for would be the rise of virtual kitchens – set up only for the purpose of delivery not just by internet start-ups but by existing retail brands. Food delivery startup Swiggy has opened kitchens in areas where the partner restaurants lack a physical presence but are likely to lure in high amount of customers.

Quick Service Restaurants (QSR)  

Organically grown food, healthy food and QSR chains are growing at an escalating rate. QSR Chains like Beer Cafe has 33 different locations and is present in 18 different countries. Wow! Momo which began their services in Kolkata has now began to expand services in an extensive part of India.

There are three big trends in the food and beverage space in 2017. A lot of this is continuation of 2016 and you will see them growing in the future.

Global Food Trends

There are various kinds of food which are gaining importance globally. For people who are iterating their ideas of food startups, following global trends maybe of help.

A.                 Eating consciously and healthy: This is the future of eating and with more people adopting a healthier lifestyle.  The Founder of Bhukkad Aruj Garg mentioned that the future of food startups is in “scaling freshness”.

B.     Eat local and organic: This is nascent but growing. Our vegetables and fruits are becoming objects of cold chain storage and are being contaminated with so much chemically oriented substances. Eating local produce which is grown without those labels is going to become more mainstream.

C.     Redefining Indian food: Good restaurant menus are already seeing the rebirth of forgotten Indian dishes and ingredients like millets, jowar,sattu etc. A lot of traditional dishes across the country are being fused with continental accompaniments and winning hearts of customers. Restaurants by Riyaaz Amlani, Manu Chandra and Bombay Canteen are pioneers in this.

All these trends have been witnessed in more evolved food markets like the US and UK where the growth of organizations who do not follow the above trends has stunted. New age organizations with certain principles and conscious philosophies are getting a lot of attention of customers.

Beverage Industry

The billion dollar beverage industry has reached peaks in diverse beverages. BIRA is brewing beers from wheat; Chaayos has more than 12,000 customization options to make “meri wali chai”; Blue Tokai Cafe roasts coffee beans every Sunday at the New Delhi and Mumbai locations.

At present, Chaayos has almost 55 per cent of an outlet's revenue comes from beverages and the remaining from food.  

Customer Acquisition in the F&B Industry

The most important aspect of Food and Beverage Industry is customer acquisition. The following are few of the various methods of customer acquisition:

A.                 Cashback and Offers: For a lot of food startups, digital has become the most important tool for customer acquisition. A lot of it is driven by offers and cashbacks.

B.     Branded Content: Strong content around the brand can be very helpful to drive trust and customer loyalty. I believe sampling is an effective strategy for customer acquisition if the food stands for something different.

C.     Indian Street Food: In a panel discussion at the Bangalore Lit Fest, most panelists agreed that the concept of Indian food was confined to ‘North Indian food’. However, Indian street food from various regions can be easily made more contemporary and sold as a QSR (Quick Service Restaurants) format or given modern twist to suit the palettes of people around the world.

The diversity of India brings a variety of flavors. By giving contemporary mixes to every Indian recipe, the outreach and scalability of the Indian cuisines can be explored. In 2017, foodtech startups may improve massively by building ideas on modernizing traditional Indian food.