The success of many new-age technology businesses depends on habit formation among consumers and one sector that has really reached cracked this is foodtech. Food delivery has become the norm across Indian metros. From the initial days of using food delivery apps to merely locate the closest restaurants or read reviews, to ordering from the swankiest of fine-dining restaurants and scoring a discount in the process, Indian consumers have become habituated to ordering from Swiggy, Zomato and UberEats for their regular meals.
Powered by huge funding rounds, foodtech majors have contributed heavily in expanding the market for food ordering in India. According to RedSeer, these players have been able to achieve this habit formation through single-serve fixed price meals, delivery capabilities beyond 12 hours, discounts and more.
But the real question is how is it affecting the kitchens at home. In fact, restaurants are themselves having a tough time surviving in a food delivery world.
Tapping into this expanded market for food delivery are the multiple cloud kitchen brands are replacing restaurant chains thanks to the ease of starting up. Cloud kitchen startups such as Box8, Rebel Foods, Bombay Sandwich Company, and Freshmenu. These brands differentiate themselves from restaurants with an affordable menu and standardised meal sizes. Also, cloud kitchens do not have a dine-in area and thus, solely depend on online deliveries for their revenues.
However, the menu options in both restaurants and cloud kitchens tends to get redundant for a customer who orders every day or nearly every day. This leads them to continue shifting between cloud kitchen brands, and trying to innovate in this niche and offer an affordable alternative are home-cook aggregators. Companies such as Masalabox, Homefoodi, and Watscooking leverage a network of home-based cooks to deliver homemade meals to their customer base.
Home Food Goes High Tech
Kerala-based Masalabox has built a network of delivery partners in both Bengaluru and Kochi. The company also provides packaging materials to its homechefs, along with giving them the freedom to decide the amount of orders they can prepare in the upcoming dinner or lunch slot. Masalabox homechefs are paid every two weeks depending on the type and number of orders they have fulfilled. The company claims to currently have 300 homechefs on its platform.
Founded by Harsha Thachery in 2014, Masalabox offers three price range of meals including mini, classic and premium meals. The company claims to be shipping an average of 800 orders per day through its mobile application. The general user demographic of Masalabox is similar to the food delivery audience — 21 years to 40 years — who have migrated from their native cities and towns for work or education. So Masalabox is tapping into the home food nostalgia to grow its business, as well as the stale feeling that ordering from restaurants might leave consumers with.
Talking of the company’s advantage over established cloud kitchen brands, cofounder Binil Antony said the major advantage Masalabox has over these brands is the variety and the scalability that Masalabox can bring at a fraction of the cost.
“Masalabox brings to users the much-needed alternative to restaurant food, providing authentic homemade food to its customers. The regional cuisines and traditional recipes that come out of Masalabox chef kitchens makes it a much superior quality product,” he added.
Foodtech unicorns Swiggy and Zomato have also entered the cloud kitchen space realising the huge profit potential in this model. To which, Antony said the entry of these aggregators has further contributed in expanding the food ordering market and this has had a spillover effect on smaller players.
As per DataLabs by Inc42’s cloud kitchen report, the market size of cloud kitchens is expected to reach $1.05 Bn by 2023. Whereas, the overall Indian online food delivery market (aggregators and cloud kitchen) is estimated to be an over $5 Bn opportunity by 2023.
However, Antony believes that the homemade food space has still not been cracked in India and Masalabox’s experience in organising this space for the past 3-4 years gives them an edge over these major players.
Further, there is a major difference between the existing cloud kitchen brands and Masalabox — the Kerala-based company does not depend on food aggregators such as Swiggy and Zomato for delivery, outreach and setting the customer experience. Masalabox controls every aspect of the business from onboarding of homechefs to last-mile home deliveries — this eliminates one of the big disadvantages that cloud kitchens suffer from i.e the lack of customer interaction.
Masalabox is able to maintain meaningful relationships with its customer base, which is not possible in the case of cloud kitchen brands which lack significant market reach on independent apps. The bootstrapped-company claims to have a customer retention rate of 40-50%.
Cloud kitchens might be less capital-intensive, but their dependence on aggregator platforms gives rise to the problem of long-term margins. Given the fact that Zomato and Swiggy have not operationally break even yet, the cost of servicing restaurants and cloud kitchens will continue to keep rising to increase aggregator’s earnings. In the long run, as aggregator platform costs increase, profit margins for cloud kitchen brands will fall sharply, and any operational expenditure advantage that they have is lost.
This is where the foodtech sector needs newer models, and indeed there’s a great opportunity for foodtech startups experimenting beyond the tested route of restaurants and the emerging cloud kitchen space.
In these terms, models such as Masalabox do seem to have an advantage if they are able to expand rapidly and retain their customer base. That’s the biggest problem for startups in the Indian market.
As Mobile-Only Accelerator MOX founder William Bao Bean told Inc42, one of the biggest challenges in the Indian internet market and across the world is that customer acquisition cost is high. “Big players like Facebook, Google and Amazon are taking a bigger chunk of that. A lot of companies that were traditionally making money from advertising, are covering their customer acquisition cost.”
However, the popularity of these platforms is expected to be limited to Tier 1 cities which have higher population of urban migrants looking for authentic homemade food options. And the way in which Masalabox manages to grab customers beyond this primary market will determine the success of its restaurant-free model.