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Food tech startup woes: From an investor's lens (Part 2)

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Investors are not allowing food tech companies to burn money mindlessly anymore. There is a clear shift in thinking, ‘Let’s get the pricing right’. If you are a food tech startup looking to raise funds, make sure your business is scalable and sustainable; unit economics should work in your favour, focus on revenue generation.
Focus on revenues is important if you are in this business for a long haul. Cut down on expenses that don’t need to be there. For example, tie-ups with restaurant across a city’s various suburbs to use their kitchen for preparing your daily order will cut down your cost of preparing a meal substianally. Spread out to the whole city with such partnerships. It will give you a larger footprint, ability to serve customers faster, control your cost and thus generate revenues once you have a critical mass of customers.
Only restaurant listing as a business model is a risky proposition. Especially now, when we already have players like Zomato who started out as a listing marketplace years ago. Even they have diversified, so there is no reason for you to start your journey from the beginning of the curve.
Deep discounting model will not work. Faasos’ survival amidst this turbulence is proof of that. The reason Faasos is seeing good traction in their business is because to some extent they have been able to control their costs. They have their own menu, cook their own food and deliver it. Tie-ups with players like FoodPanda, Zomato, TinyOwl work as support for getting additional business to the company. They are marketing heavily to drive their app’s downloads.
Box8, another fast growing food tech startup, launched with a new concept to fit the entire meal in a box making it convenient for the customer to eat anywhere – Be it at office or on the move. They have also maintained control on their menu and food quality, which has resulted in customers liking their food.
Business ideas around food tech have to go beyond what Zomato, Food Panda, TinyOwl have achieved. As an investor, I would be interested in evaluating businesses that are optimising someone else’s kitchen and keeping their costs in check. If a food startup or a QSR wants to include a home delivery piece and make it a viable business model, then the cost of delivery can’t be more than the total value of the food items ordered. Till this issue is not addressed, the sector will continue to feel the pressure.
What will work?
A pure delivery model is a no-no because value add is not great. As an investor, I would be inclined to invest my money in a food tech start up which connects restaurants and consumers, enables discovery and has a rational costing model for the home delivery piece of the business. For a home delivery option to become a revenue generator for any food tech company, the average ticket size per order should be in the range of Rs 150 — 200. In addition to this, keep the following points in mind:

  • Use tech to optimise cost of production
  • Optimise kitchen
  • Better cost management
  • Focus on operational efficiency of the kitchen
  • Avoid building your kitchen
  • And obviously, no compromise on quality and taste
  • I have been associated with startups for more than a decade and my job allows me to learn and explore various business models. I have been mentoring a food tech startup and the team has developed their menu, has a dietician on board ad an ops manager but they don’t own a kitchen and they are working on bringing down the cost of delivery further.

Has the bubble gone bust?
That won’t be correct to say because food tech startups are the way forward as more and more customers go digital. This is a correction phase and is likely to continue for some time. Funding activity will gather momentum once the correction phase is over. New investors will also start looking at startups as an asset class bringing in new dollars. Hopefully, entrepreneurs will also come out of it with new learnings.
(This is a part two of our two-part series on the current status of food tech startups in India. Part one talked about the real situation in the food tech space and what investors are thinking. Click here to read PART 1)
Food tech startup woes: From an investor’s lens (Part 1)

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