I read this article in the Economic Times yesterday, and realized that the food-tech sector has just demonstrated its real impact and latent demand on two public stocks (Jubilant Foodworks & Speciality Restaurants)
Delayed recovery in same-store sales over the medium term seems not just cyclical but also structural. There seem to be no signs of revival,” Abneesh Roy, an analyst at Edelweiss Securities
Roughly 36% of Jubilant Foodworks sales were via online ordering (OLO as they term it), which contributes to approximately — INR 800 Crores GMV (run-rate) in annual revenue run rate across Dominos & Dunkin Donuts in India & Sri-Lanka. (Keep this number in mind)
The structural shift spoken about by Abneesh Roy, isn’t a slow down in the Indian economy, or consumers cutting back on spending as some others have conjectured.
Consumers have a lot more choice today when it comes to where they order home-delivery food from. Thanks largely due to the Food-Tech Bubble as many perceive.
— Vipul Satya (@vipulsatya) February 6, 2016
From a recent conversation on Twitter with Vipul Satya
Impact of Food Tech investments
The past 18 months have seen a significant surge in the quantum of Venture Capital investments in Food Tech. Collectively, the sector raised $375M in 2014 & 2015 across 55 companies.
A whole host of new companies got created as a result. Food delivery marketplaces, Internet-First restaurants (or “cloud kitchens” as some call them), a couple of physical restaurant brands pivoted to delivery only, Recipe Boxes, Chef marketplaces, and many more.
The initial sampling and surge of orders was driven largely by deep discounts offered by the likes of Foodpanda, Tinyowl, Swiggy, Zomato, Faasos, Freshmenu etc all. And lets not forget the discounts offered by the payment gateways as well; PayUMoney & Paytm splurged lavishly on this category.
This was followed by a round of crash & burn, consolidation.
The exuberance has left behind lasting & meaningful structural changes:
- More choice for consumers — beyond QSR’s & delivery chains. You can order from a restaurant that doesn’t have their own delivery fleet
- New infrastructure — delivery-riders available “on-demand”. Quoting RoadRunnr — ‘book, track, and manage deliveries at scale’
- Digital payments, Menu discovery, Repeat Orders – Simple but powerful features enabled by a variety of apps
Based on a couple of articles, and my conversations with people in the industry, I conjecture that an average of 100,000 orders @ average order value of INR 300 per order are being placed through new Fo0d-Tech companies relying on the online/mobile channel exclusively. These orders are delivered from nearly 25,000 restaurants.
That is roughly 1095 Crores GMV in annualized orders. 20% more than an established mega-brand like Dominos & Dunkin.
Couple this with growth rates of category leaders in the range of 15% MoM, the category should double every two quarters.
INR 1000 Crores in GMV in a short 18-months is no small feat!
What The Future May Hold
While the Food-Tech exuberance raised a lot of eyebrows in past 6-months, it has created new-infrastructure that brings more choices for consumers, and enables a broader spectrum of Restaurants/Chefs/Homecooks to deliver their product to a mass audience.
My prospection is the following:
- Emergence of new “delivery only” brands at the scale of Dominos, Chipotle, McDonalds enabled entirely via the new Food-Tech infrastructure.
(Freshmenu, Faasos are already getting to some scale; we will see 10–15 more)
- Tier-2 markets will latch on to this phenomenon, the same way they adopted E-Commerce.
- Micro-entrepreneurship for good home-cooks will flourish. A new form of scalable livelihood for many
- Palette expansion for the mass Indian consumer — international cuisines become more accessible at lower price points
- At least two or three nationwide online Food delivery marketplaces will reach sustainability, and see a path to an IPO in 3 years from now
- Consumers will be willing to pay for “assured delivery” at peak-hours. We may even see some platforms introduce Surge-Pricing like Uber & Ola
The worst of the Food-Tech correction is behind us, the revolution will continue on, and it just demonstrated its impact on two large stocks on the BSE SENSEX.
Now, I am going to go order a Starbucks coffee from Swiggy!
Let me know your thoughts @mitensampat.