Your browser is currently blocking notification.
Please follow this instruction to subscribe:
X
Notifications are already enabled.
X

Food Marketplace, Food Delivery Or Full Stack Food Business – Which One Will Win Eventually

Food Marketplace, Food Delivery Or Full Stack Food Business – Which One Will Win Eventually

Food is probably the most sort out space right now. There are primarily 3 areas in which the action is visible:

  1. Food marketplace
  2. Hyperlocal food delivery
  3. 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.

Food Marketplace

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.

Hyperlocal Food Delivery

Hyperlocal delivery (B2B) is a very exciting space, and I believe this is going to be one of the next big revolutions. Fortunately, this has none of the problems of a food marketplace, however, a hyperlocal food delivery is extremely challenging (operationally) and unless coupled with deliveries of other B2B categories it is likely to face unit economics issues.

For us to understand the food delivery space, we need to understand the consumer behaviour, while ordering food. The biggest challenge in food is that the orders once placed need to be processed within minutes. Unlike any other category the window of purchase/delivery is centered around 3 hours for lunch and 3 hours for dinner. So the entire system (read delivery boys/operations folks) needs to scale to its peak during this time window. The flip side of this is that there is little or no purchase happening during the non peak time. This brings in the following challenges for the business:

  1. The delivery boys (or any team which is managing the order life cycle) cannot be productive for their entire work time (8 hours). Resulting in managing break shifts and other complicated structures.
  2. The cost of a trip becomes high.
  3. Since food is a small ticket cost sensitive purchase, it will be unable to fund an expensive delivery model. This will force businesses to club multiple orders in a single trip, which in turn will lead to delayed deliveries and customer angst.

To solve the above challenges, last mile delivery businesses will need to focus on more categories and at some point will need to become aggregators and not employers of riders. This will obviously bring on other challenges but economically this is perhaps the only way to build a sustainable business. No one will be able to sustain by being a food only hyperlocal delivery business in the long run. However in this business multiple players will be able to co-exist and there might emerge city/region based powerful players instead of pan Indian players.

A Full Stack Food Business

This has the potential of operating under a much better unit economics than the above two. It also is perhaps the only space among the three in which we will see lovable brands emerge. However, this is an extremely challenging business difficult to build/scale and get it right.

Historically, the restaurant industry has also been one of the most laggard in terms of technology usage, this is more true with regards to the Indian food category. It is a common knowledge that in India (spurred by increased buying power and nuclear families) the demand for pre-cooked food has been growing at unprecedented rates since few decades. Many multinational brands have capitalized on this demand by productising dishes and streamlining processes.

But in-spite of this visible trend, very few desi large food brands have emerged. Most businesses have either tried to build a brand around the low cost food segment or have focused on niche categories like wraps only or vada pao only restaurants. There have been little or no innovation in the last few decades and hence in my view this space is waiting to be disrupted.

There are many startups working in this space, but very few are focusing on the most important aspects of the business like food standardisation and backend efficiency improvement. The ones who will solve this challenge and use technology in building a scalable food production system will be the ones who will build a mammoth business. Some of the startups in this space will be forced to shut down due to poor unit economics and high cost of deliveries. While few others focusing on niche cuisines and categories will find it difficult to scale to different cities.

Note: The views and opinions expressed are solely those of the author and does not necessarily reflect the views held by Inc42, its creators or employees. Inc42 is not responsible for the accuracy of any of the information supplied by guest bloggers.

Author

Ritesh is Co-founder,Petoo.in & Ex-founder & CEO JUST EAT India.

Responses
https://inc42.com/buzz/kunal-bahl-tweet-backfired/
Loading Next…

Upcoming Events