The Bubble Is Bursting
Despite beginning with a bang, Indian food tech startups have been feeling the heat since last year. Many of them have either shut down or have scaled down their operations.
Though, initially touted to be worth $50 billion the food tech startups cumulatively saw investments of a whopping $74 million in the first half of 2015 alone. The picture started looking a little bleak in the latter half of last year with the funding dipping to $19 million. The funding in the later rounds and with newer startups dropped further between $1 and $3 million. But what went wrong?
–Delivery Costs: Delivery cost is a big component in making the home delivery model work. And it doesn’t come cheap. Companies have been delivering food to customers at higher costs in the hope that they will form a habit of ordering food, and volumes will eventually make enough business sense for them in the long run. However, this premise has not proved right and has gone against food-tech startups.
–Unique Product Offerings: Another problem area is that today, nobody is talking about unique product offerings coupled with consistent quality/taste and variety, which would bring stickiness. Most of the startups, which got funded, focused more on building a me-too copycat model than working on providing unique offerings that would have helped them survive in a long run.
–Discounts: Discounts and cash back schemes have proved to be suicidal. Companies bear various costs like data, servers, call centers, employee salaries and online marketing costs. Startups, which own the entire chain from kitchen to delivery, have to spend on petrol, bikes, uniforms, and packaging to keep the food warm. Thus, keeping extra funds for discounts and cash backs is next to impossible.
Here are a few food-tech startups that could not survive the changing market scenario:-
Brand Story: TinyOwl, a location based app was founded by IIT Bombay graduates Mandad, Gaurav Choudhary, Saurabh Goyal, Shikhar Paliwal and Tanuj Khandelwal in 2014. The company received funding of Rs 100 crore in three rounds from Sequoia Capital, Nexus Ventures and Matrix Partners.
It operated in cities like Delhi-NCR, Bangalore, Mumbai, Navi Mumbai, Hyderabad, Chennai, Ahmedabad, Jaipur, Nagpur, Lucknow and Chandigarh.
Current Scenario: TinyOwl has temporarily discontinued its services in all cities except Mumbai.
Brand Story: Zomato is a restaurant search and discovery service founded in 2008 by Deepinder Goyal and Pankaj Chaddah. It features restaurant information such as scanned menus and photos sourced by local street teams, as well as user reviews and ratings. The company also provides cashless payment, online ordering, white-label apps, table reservation, and point-of-sale systems. It has raised around Rs 1,400 crore in eight rounds of funding from investors like Info Edge, Vy Capital, Sequoia Capital and Temasek Holdings.
Current Scenario: After a series of valuation markdown and a sharp 262 per cent increase in losses Zomato pulled off plug in nine of its 23 overseas markets, including the US and the UK, Italy, Sri Lanka.
After claiming to witness 50 per cent month-on-month growth from online ordering business, Gurgaon-based restaurant information portal shut down operations in four cities in January, as order volume in these cities failed to pick up. The cities where it decided to stop services were Lucknow, Kochi, Indore, and Coimbatore.
Brand Story: The foodpanda group, founded in 2012, is the leading online food delivery marketplace in emerging markets. It enables restaurants to become visible in the online and mobile world and provides them with an industry leading software and technology to generate additional demand. For consumers, foodpanda offers the convenience of ordering food online and the widest gastronomic range, from which they can choose their favourite meal via app or online with a few fingertips. In six rounds of funding from investors like Rocket Internet and Goldman Sachs, the company has raised almost $310 million.
Current Scenario: In December 2015, foodpanda laid off closed to 500 employees from all business segments—sales, marketing, vendor service, customer delight, business intelligence, automation, on-boarding and an in-house call centre in Gurugram. From January onwards, it also food delivery in six cities, including Kolkata, Chennai, Nagpur and Coimbatore.
Brand Story: Bangalore-based Dazo was founded by Shashank Shekhar Singhal and Monica Rastogi in October 2014. It had raised an undisclosed amount in funding led by industry professionals like Rajan Anandan (MD, Google India), Amit Agarwal (Country Manager, Amazon India), Vinay Goel (Director, Product Management, Google Maps & Local) and Gaurav Munjal (Founder and CEO, Flatchat). The company had initially started off as an Internet-first kitchen and eventually pivoted to become an aggregator of selected restaurants.
Current Scenario: Dazo had to wind up its operations less than a year after its inception as its investors tightened their purses.
Brand Story: Founded in April 2013, with the mission to make healthy food affordable and accessible to everyone, SpoonJoy.com, baby of Manish Jethani, offers freshly cut fruits, sprouts, a combination of both, lunch, snacks on a weekly subscription basis for users. SpoonJoy delivers food to either office spaces or homes between 10am to 6pm in slots, depending on the users’ convenience. It raised $1 million in two rounds of funding.
Current Scenario: Internet-first restaurant SpoonJoy has paused operations in Delhi and parts of Bengaluru in October 2015. Later in same month, it was acquired by Grofers.