The market for India’s tech startups in the food delivery business has grown relatively fast over the recent years. This started when customers realized that they could have their favorite foods delivered at no extra cost and straight from their mobiles and computers. The customers received large discounts and the orders were delivered for free. The main reason why the majority of the food delivery startups were subsidizing their products and services was to attract more customers. They overlooked the fact that these were unprofitable models, which could ultimately lead to large business losses.
Currently, the situation started changing as venture capital (VC) injected in the sector has dried up, causing the collapse of several food delivery startups. TinyOwl, a Mumbai-based online food ordering portal, has halted its services temporarily in all cities except Mumbai. The firm is planning to merge with RoadRunnr, a delivery company, and relaunch their operations under the new name Runnr. PepperTap, an Indian online grocery delivery platform, shut down its operations in April this year. Dazo, a food startup based in Bengaluru, closed its operations last year due to lack of funds. The $1 billion valuation of Zomato, India’s remaining food tech pioneering firm, has been halved by HSBC analysts. One thing that all these startups have in common is that they had previously raised millions of dollars in venture capital.
The days of hefty marketing budgets and endless discounts are now gone. Firms, such as the online food ordering portal Swiggy, have started reviewing their pricing strategies. The firm’s delivery fees now increases on festival and rainy days. However, putting a stop on the discounts has resulted in the disappearance of customers.
But the poor performance of food tech firms is not exclusive to India. Europe and the U.S. have recorded a similar trend. In general, VC injected in food delivery startups has continued to decrease while pioneering startups are closing down. The main reason for the closure is lack of capital.
Millions of dollars were spent by food-ordering companies in assembling numerous menus from different restaurants across the world. Customers’ favorites could be delivered to their doorsteps at around Rs. 100 ($1.48) only.
TinyOwl co-founder, Harshvardhan Mandad, said, “There were 80 startups a year ago, all “Hum bhi kar sakte hain” (We can do it too) players who raised funds and started discounting in order to overtake the rest. Now there are hardly 10 left standing.”
Investors now demand startups to formulate profitable models. Managing director of a VC firm SAIF Partners, Alok Goel said, “They have to leverage technology to unlock value in the cost structure and innovate to pull ahead.”
However, some entrepreneurs are still optimistic about India’s food tech industry. The country’s e-commerce has a firm foundation as more and more Indians are now making online purchases. Also, the number of smartphone and internet users in the country is constantly on the rise. A recent study by Morgan Stanley shows that India’s e-commerce market is projected to reach $119 billion in 2020. This shows the possibility of the food delivery industry increasing in the years to come. But the success will only be to those firms that develop proper business models to balance between customer satisfaction and profits.