The Story of Food Tech

(Guest Column by Bhupendra Jha, Founder & CEO

Food Tech has been in lot of news in last one and half years. Initially for huge investments flooding this segment, all trying to capture the USD 50 billion food market in India as early as possible. And lately for the problems that have risen in this segment- not able to scale, operational challenges, big losses, large layoffs, companies shutting down. 

So what is this Food tech that has created so much of noise in a short span of time ?

Food tech companies are those trying to address various problems related to discovery of food/restaurant, ordering, managing logistics etc with the help of technology.

Broadly these can be classified as:-

-   Restaurant/Food Discovery - Zomato, (Global- Yelp)
-   Food Ordering & Delivery – Food Panda, Swiggy, (Global-Delivery Hero,, Grub Hub, Meituan)
-   Delivery Only –Opinio, Runnr (Roadrunnr), ShadowFax
- Cloud Kitchen/ Internet only Restaurants – Freshmenu, Holachef, Yumist, Eatfresh, Petoo
-  Curated Menufrom Restaurants–Cookaroo,

With ever increasing smartphone penetration and improvement in technology the way businesses are being done is changing at a very fast pace - be it advent of Taxi Hailing Apps, be it e-commerce or be it online food ordering. China, US and India have emerged as three dominant players with expected smartphone reach of 620 million, 160 million and 236 million respectively by the end of 2016.

Why so much of focus on Indian Food Tech market:

-     Food Service Industry is currently estimates at USD 50 Billion in India.
-     Market is expected to become USD 78 Billion by 2018
-     Segment is highly fragmented with over 1.5 million outlets with just over 3000 outlets under organized segment

Indians on an average eat out lesser than 2 times a month, compared to 40 times in Singapore. Even a small increase in this number provides a huge market opportunity for restaurants in India
   Drivers of Growth:
 1. Socio Economic Factors: -
a. Average household income is expected to increase 3 folds from $6,393 in 2010 to $18,448 in 2020
b. Over 200 million households to be nuclear by 2020 – with 25-50% higher consumption per capita spend

2. Urbanization:-Along with 6 major cities 20 Tier 2 cities are expected to emerge as major economic centers with a total population in excess of 180 million 40% of population to live in urban cities up by 31% in 2010

3. Technology: - By 2020 internet reach in India is expected at 650-750 Million with 600-650 Million people having smartphones (Source: BCG Report)

Problems plaguing the segment:-

As detailed above the picture looks so rosy for Food Services segment:- There is a huge market, big growth opportunities, increasing disposable incomes and what not. But once you dig down deep the real challenges surfaceup:-

Operational Challenges
1)  Peak time delivery resource requirement:- The demand for meals mainly is during lunch and at dinner. Peak lunch time is between 12:45-1:45 PM and peak dinner time between 8:30 – 9:30 PM. So the food has to be delivered during that time frame itself. Under current situation with varied delivery locations, for 100 orders to be delivered in peak time even in best case scenario close to 40-50 delivery guys are needed.

2)  Limited Capacity for home delivery by Restaurants:- With restaurants having their own dine in customers to cater to, its capacity is limited for preparing additional orders for home delivery. On an average a restaurant can prepare a max 60-70 orders for delivery

3)  Scalability- Getting initial 100-200 orders/day in a locality is not very difficult. The real challenge comes post that. Being operations intensive scalability becomes a major challenge.

Financial Challenges:-

1) High Customer Acquisition cost: With too many players mushrooming up Customer Acquisition cost has become too high. Customer loyalty is low, and hence the Customer retention has become costly with deep discounts being offered.

2) Cost of delivery vis-à-vis Order Size: Current average salary of a delivery personnel varies between Rs. 13k-17k/month. Cost of Delivery in best case scenario for a B2C player comes to around Rs. 60 -70/order. With an average Order Size of Rs. 250, cost of delivery @ 25% of Selling Price is way too high.

3)  Unit Economics Issues: Food delivery is a low margin business. Food Ordering & Delivery companies like Swiggy, Foodpanda take on an average  15%-20% commission per order. Bigger or better doing restaurants pay even less. With average order size being Rs.250, maximum revenue that can be made/order comes close to Rs. 50. With Delivery cost itself being close to Rs. 60-70/ order, there is a big negative delta. If we add other costs, then the loss made per order worsens the situation even further.

Future of Food Tech – Food Tech Scenario has not been looking that great for what has happened in last eight – ten months. Too much of money has been spent on customer acquisition, customers have been also given heavy discounts from investors money for using their products, unit economics didn’t improve nor did the scalability. So investors money has dried up. Is this the end of FoodTech industry then?

Apparently this is a blessing in disguise. With limited availability of funds - focus now is more on cutting extra flabs, improving unit economics, showing profitability.

With changing needs as well as behaviors of new age people, online ordering across segments sooner or later will become a habit. So the phoenix of Food Tech will definitely rise again. Who will rise?

1. Those who focus more on the end product “Food” than “Tech”. Tech is an enabler but the key consumable product remains “Food.”

2. Those who focus more on “Backend” than “Frontend” for better operations management and cost reduction.Operations being the backbone for majority of Food Tech companies a strong and robust backend IT infrastructure that manages orders, deliveries as well as logistics has become far more crucial.

3. Those who focus on Sellers as well and not just on buyers. Those who help Vendors/Restaurants/Home chefs optimize and maximize capacity utilization, help reduce overheads, help reduce costs.

4.  Those who start with a focused approach be it targeting to a specific Customer segment or focusing onto certain areas for operation. With a widespread demand, food being perishable in nature, short timelines to fulfill deliveries – its not operationally viable to target every customer or every locality.

Few companies seem to have found the right balance. US based “Eat Club” has been doing well with focused approach to corporate customers. They are serving to more than 700 companies with impressive margins and repeat customers. Average delivery size is $300 which is 10x the size of average B2C customer. Till date the company has raised $16.5 million and sees 96% of its revenue from repeat customers.

At FoodeeBro have been focusing mainly on corporate customers. We have reached 500+ meal/day with average order size at each office in excess of Rs. 5000 which is close to 20x the size of average order for a B2C player. This targeted approach has helped us to maintain healthy margins and each office location being operationally profitable.

About the Author
Bhupendra Jha is the Co-Founder & CEO FoodeeBro (BRAV Technology Pvt. Ltd.), a food Startup setup to provide quality and tasty meals to corporate customers suiting diverse taste buds of diverse employees 
He is an IIM Indore and NIT Bhopal alumnus and been a banker before turning entrepreneur.
He is a die hard Foodie himself and an avid footballer

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