HUNGRY FOR MORE

Google and Uber are learning money can’t buy them victory in India’s brutal food-delivery wars

Obsession
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Quartz india
Obsession
Sourced
Quartz india

India’s food-tech scene has been quite the party—but the guest list is starting to become more and more exclusive.

Many of the nascent companies that set up shop during food tech’s heyday in 2014 could not deal with growing pains and started falling like dominoes in 2015: In October, delivery startup Dazo shuttered. Bengaluru-based delivery platform Eatlo closed its platform in December, barely a year after it launched. Others resorted to drastic measures to stay afloat. For instance, online food-delivery startup Swiggy started testing surge pricing à la Uber and Mumbai-based on-demand delivery firm TinyOwl laid off hundreds of employees and shut operations in a number of cities to streamline its business.

In a candid blog post, Deepinder Goyal, founder and CEO of the Yelp-like restaurant-discovery and ordering platform Zomato, which fired around 300 employees—10% of its workforce—amid slipping valuations and widening losses, labeled 2015 “truly our year of learning.”

In 2016, the bloodbath continued. Food tech investments plummeted from $500 million in 2015 to $80 million. Consolidation became the flavor of the season: In June 2016, TinyOwl was acquired by hyperlocal-delivery startup RoadRunnr; the two merged into a new company, Runnr. In December, Delivery Hero acquired rival FoodPanda. A slew of other startups—Zupermeal, iTiffin, EazyMeals, Zeppery, BiteClub—all bit the dust.

This year, as food tech strives to get back on its feet, two Silicon Valley behemoths—Google and Uber—have chosen to dance in the rain in India: Google launched Areo, a restaurant delivery and home services platform, in early April. Uber followed suit on May 2, announcing that its on-demand food-delivery arm UberEATS was going live.

The question is, will they ride the waves or will they go under?

The playing field

Entering the industry in the current climate looks like a recipe for disaster at first glance.

In 2016, 56 deals—cumulatively worth over $88 million—were made in the food-tech space, according to data financial-research platform VCCEdge shared with Quartz. The first quarter of 2017 saw far fewer deals and a much lower total investment than the same quarter in 2016. However, the market doesn’t seem to only be spiraling down: Compared to Q4 2016, the total amount invested in Q1 2017 actually increased by over $5 million.

A food-tech company succeeds by being at the “right intersection of innovation, speed, and cost,” says Venkat Shastry, a partner at global executive search firm Heidrick & Struggles’ Bengaluru office. Speed and cost seem relatively easy for big tech firms because of their deep pockets, technological prowess, and established sophisticated delivery mechanisms.

But logistics is only half the story—companies need to innovate by developing a core understanding of Indian customer preferences. “For example, Unilever, Pepsi, and KFC made long-term investments in the market to customize experiences and appeal to the Indian customer’s palate,” Shastry says. To succeed, Uber and Google similarly will need to create a delivery model that caters to the price-sensitive, cash-dependent Indian customer.

At the outset, both companies are being cautious and feeling out the market. So far, the online food delivery startups that have been successful have had their achievements concentrated in a handful of regions—more than 80% of orders come from the top five cities in India, according to a study published by Bengaluru-based RedSeer Consulting. Learning from the domestic companies that tried and failed to penetrate a large number of markets, Google and Uber are focusing on urban centers for now. The search giant has launched operations in India’s IT and commercial hubs—Bengaluru and Mumbai respectively. Uber’s food delivery service is just available to Mumbaikars for now.

The upper hand

Experienced Silicon Valley players do have a leg up on their Indian counterparts when it comes to time- and cost-efficiency.

Amazon’s massive $5 billion investment in India’s e-commerce space is a drop in the ocean for the $430 billion dollar e-tailer, but completely eclipses anything local companies could spend. The e-commerce sector’s fate will likely play out in food delivery to some extent: Google and Uber can easily bite into local players’ market share by slicing prices, thanks to their massive capital base from their global operations.

For instance, an UberEats customer doesn’t have to fill a minimum order size and will pay a Rs15 ($0.23) delivery fee—half of Swiggy’s Rs30 to Rs40 ($0.47 to $0.62) delivery charge (for orders below a certain amount).

Having lots of capital also means you can take more risks. If Google’s food delivery doesn’t take off, its home-services section that lets people order plumbers, electricians, or painters, might still become a hit.

As less successful startups get weeded out and larger international players make huge monetary and infrastructure commitments, it may feel like local entrants have no hope. But that’s not true.

Local flavor

Although the likes of Google and Facebook are making moves to bring more Indians online, only 26% of the population has access to internet. Brands like Uber and Google that are household names in the US are still not commonplace in many parts of India. And if the brands can’t reel in customers on the basis of their names, they have to compete more fiercely at a local level.

“The biggest barriers [are] the local Indian restaurants who have been traditionally already doing the delivery service…[and] which already have an established network,” Shalini Prakash, a venture partner at the Bengaluru office of Silicon Valley-based accelerator 500 Startups, told Quartz. Domestic services like Swiggy and Runnr already partner with a wide variety of restaurants. Even though there are no rules against restaurants selling on multiple platforms, customers may not switch delivery services—even if it’s cheaper—out of loyalty, convenience, or simple lack of awareness.

Another way upcoming domestic businesses can compete is to “look it into unique food products which becomes their USP [unique selling point],” says Prakash, citing the Mumbai-based startup Raw Pressery, one of the first—and highest-funded—companies to package and deliver cold-pressed juices. In a country with 29 states where people speak at least 22 different languages and eat many different kinds of cuisines, there are myriad unexplored local and international food options that are still open to tech companies who can do them right, Prakash says.

And let’s not forget that food tech is more than just online delivery—and non-delivery services is an area where local companies appear better placed to succeed.

According to VCCEdge, funding in Q1 2017 backed a diverse range of startups—from those processing and packing fresh meats to those delivering run-of-the-mill household products like milk and eggs to others offering platforms to book professional chefs.

Company Type of business Deal Value City
Delightful Gourmet process, pack, and deliver chicken, lamb, and seafood $10 million Bengaluru
Maverix Platforms produce and sell ready-to-cook food products $3 million Mumbai
Love Food Ventures produce packed perishable goods $500,000 Bengaluru
D I Infosolutions online food delivery $440,000 New Delhi
Supr Techlabs delivery of daily need products like milk, eggs, etc. $120,000 Mumbai
Pod Conceptions Services delivery of natural, artisanal, and homegrown food undisclosed Mumbai
FreshToHome Foods e-marketplace for fresh, chemical-free seafood undisclosed Bengaluru
Commercio Connectivity booking professional chefs undisclosed Bengaluru
Supply Chain Analytics and Technologies online fruits and grocery store undisclosed Delhi

Starting fresh

“India is like the wild west right now,” says Sandeep Murthy, co-founder of Mumbai-based Lightbox VC. “So many businesses have been serving such a massive consumer need in such a fragmented way.” With the advent of technology, the sector is looking for businesses that can deliver consistent, scalable value over time. Beyond pizza chain Domino’s, India doesn’t really have highly penetrative brands in its food sector, Murthy notes. There are also no mega brands waiting to fill the space.

“[In the US, I watch] some reporter talking about Amazon eating somebody else’s lunch…they’re always talking about old world retailers figuring out how to grow their business online,” says Murthy. Indian food tech companies won’t run into that problem. “If you think about who would the old-world guy be [in India], there’s no one.” This means new brands and chains can build themselves up on tech-enabled platforms directly.

Startups operating on a kitchen-based model, wherein they cook, package, and deliver the food, are cut out for success. Controlling the quality of food keeps customers coming back and keeps these startups in the running while services that aggregate restaurant choices and do last-mile delivery are the ones fading out, according to Murthy. (He admits he’s biased. Lightbox VC backs on-demand food startup Faasos, which makes and delivers meals to customers’ homes from 9am to midnight daily across 15 Indian cities.) The American companies likely won’t cannibalize these kinds of businesses. In fact, Murthy views them as another retail avenue for local businesses. “It’s great. Let them distribute our product as well,” Murthy says.

There’s still room for plenty more players, as long as they have a clear-cut business model that can work with or despite Google and Uber. “Pick your aspect, pick your strength, and try to compete,” says Murthy. “Whoever’s got the best pick and shovel can do some damage and find the right gold.”

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