Food is probably the most sort out space right now. There are primarily 3 areas in which the action is visible:
- Food marketplace
- Hyperlocal food delivery
- A full stack food business
When there is too much activity in a space, it often leads to confusion. The situation in food now is eerily similar to what happened with ecommerce in 2010-2012. Entrepreneurs were trying to solve different challenges within ecommerce and investors were making huge bets. I have spent a lot of time working in the food space and here is what I think.
This is a fantastic business when at scale and at a steady state. The only problem is that the steady state in India is still few years away. We also need to understand that online food ordering is not solving a major problem as far as consumers are concerned. I know this statement of mine will raise a few eyebrows, but I believe that the convenience offered by for example an Online ticketing agent (OTA for flights/hotels or buses) is far more valuable than what a food ordering platform does.
The alternative of an OTA is a travel agent, and I have to go to him physically to get my tickets done, but in case of food delivery a restaurant is just a phone call away. Restaurant discovery platforms too don’t add a lot of value when I need home delivery of food because restaurants generally in my vicinity serve me and if I am staying in a place since few months then I already know where all to order from. Restaurant discovery platforms are of immense help in helping me discover restaurants whenever I want to dine out or if I am new to a place, but unfortunately, this doesn’t translate into a very large $$ opportunity.
The implications of not solving a very compelling problem for a consumer are enormous on the unit economics of a food marketplace. Since food marketplace is not a must have for many consumers, it requires the platform to provide an incentive to the consumer to change the habit. The incentives generally come in the form of discounts, as a result the cost of acquiring a user sky rockets. Since the revenues are based on commissions a platform will require the user to place double digit number of orders to break even on the acquisition cost. Forget about recovering the cost of order life cycle management.
Because of the above reason alone there cannot be multiple players in this space in the same geography (multiple players will force consumer acquisition cost to increase unabated). The other important fact is that in a food marketplace it is extremely difficult to build brand love because there is little differentiation possible in terms of product or consumer experience. This hence, will be a winner takes all and we will most certainly see consolidations happening in this space in India in the near future.