The problem with food delivery startups in India cannot be ignored. Especially, when the failures in food delivery startups are increasing on daily basis.
Food Panda’s investors Rocket Internet have struggled to find a buyer for the startup. The rumours (do we still trust them? 🙂 ) are – there are no buyers even at a price of USD 10 million.
Yes. You read it right. The same startup which raised USD 300 million a year back is on sale at a price tag 30 times less than the last funding they received.
The story is shocking, as Food Panda had acquired Just Eat’s (a UK based startup) India operations and Tasty Khana sometime back.
Their nearest rival Tiny owl’s story is a stuff of legends. They hired – then fired employees in bulk without giving them proper notices (as alleged by employees).
The employees gheroed their directors and kept them as captives until they were assured salaries.
They ultimately sold the business to Road Runner.
The last year saw the closure of Spoonjoy, Dazo and many more food startups.
Just Eat, The UK brand entered the market and left without any fuss. They
Zomato, few months gave us the good news of breaking even in India operations.
And before the startup world could open the bubbly, they sacked workers and downsized operations.
A few months later, they were devalued by HSBC.
Suddenly the industry of opportunities is turning into an industry of problems.
The crowded space has already made way for very few players surviving the tough times and the tough times of Indian Startup space continues.
Some are wiser and are spending every penny wiser.
Others are just waiting to raise more funds to fund their insatiable hunger to get more customers.
So what went wrong with the 15-billion-dollar food ordering industry?
What are the problems that are leading to so many failures in food delivery startup?
1. The unviable discounting model:
To start with, they copied the model of e-commerce industry to get customers. i.e, they sold the meals bought from their vendors at a price lower than the buying price.
They discounted the buying price in the hope to keep the customer.
The heavy discounting to keep customers worked till the customers jumped ships.
I am not saying the e-commerce industry is not feeling the pinch with the flawed strategy of heavy discounting. All I am saying is, the food industry cannot compete with e-commerce portals with revenue and business execution.
They can never generate the type of revenue e-commerce industries can do to create a top line of evaluation.
2. The strict Delivery Model:
The second problem with the food delivery businesses is the backbone of their business “the delivery model”.
We all like our food served hot. (at least I do :))
With e-commerce you obviously do not expect it to come hot. They have the luxury of at least delivering what is promised within a stipulated time frame.
And there are times, they do not deliver and send us an apology email.
In food delivery business, the delivery has to happen instantly or within a short time frame.
Your delivery boy picks up order from the restaurant and delivers the order to a customer.
You get your cut on the order.
The task force required to keep up such an operational infrastructure is humongous.
Either, your number of orders should be a very large number or your workforce should be manageable.
And to balance both requires a smart strategy.
Something our startups have missed terribly.
They either rely on heavy discounting backed by heavy funding or try strategies, which have not yielded the expected results till date.
Now almost all the restaurants I know of, either have their own delivery service catering within 5 to 7 KM radius or sometimes more.
Why would I want to order from a 3rd party when I can easily call up the local restaurant and ask them to deliver?
Also, I do not expect a third-party provider to call me and tell me “Your order has been cancelled when I have guests waiting for dinner at home”.
I might be fine with e-commerce deliveries failing but food delivery startups do not have the luxury of cancelling the order.
3. Vendors deserting the ship:
With the investors asking the startups to cut losses, the startups have increased their cut to as high as 25%.
Also, the model I explained above is facing a lot of issues with late deliveries of orders. Delivery boys not turning up on time.
Delivery boys not dressing up properly.
Recently, many famous restaurants opted out of Roadrunnr and Swiggy because of the delivery issues (read : Restaurants back out of from food tech startup…)
Famous Restaurants can still survive without the 3rd party middle services like foodpanda. I am not sure if portals/apps can survive without them.
With the vendors deserting the ship at such an infancy stage, the problems do not seem to end for the food delivery startups in India.
Last but not the least of problems is the overestimation of food delivery business.
In my opinion, eating food is more than just going to a restaurant and having food in a restaurant
It involves an experience, where you enjoy the ambience, service and food.
You are paying for the experience, not the food.
We order either from local restaurants (which delivery to our homes with discounts) and when we have to order from a far-off restaurant, we prefer to go out and eat.
Rarely have we ordered from a restaurant which is quite far from our place.
And I speak for the majority of middle class.
I did speak to a few friends to get their opinion of the food delivery startup.
They all shared the same opinion as I do.
Slowly, the food delivery business is heading in the direction of the online grocery business.
On the positive side, the SOPs are falling in place.
Startups are trying to cut losses by shutting unprofitable arms of business and focusing on core business.
My suggestion to anyone planning to foray in the food delivery startup space is to wait for some more time.
Investors are not looking to invest in food delivery startups (new) presently.
Let the storm pass and let there be more learning from the unknown territory.
You can use the learning of others to survive the tough phase of running a startup.