Despite beginning with a bang, Indian food tech startups have been feeling the heat since 2015. Many of them have either shut shop, others have scaled down operations.
Though, initially touted to be worth US $50 billion, food tech startups cumulatively saw investments of a whopping US $74 million in the first half of 2015 alone. However, the picture started looking bleak in the latter half of 2015 with the funding dipping to US $19 million. The funding in the later rounds and with newer startups dropped further between US $1-US $3 million. But what went wrong?
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.
Another problem area is that today, nobody is talking about unique product offerings coupled with consistent quality/taste and variety, which would bring stickiness.
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.
Despite the disruption in the entire industry, food delivery start-up Swiggy has recently managed to attract an investment of US $5 million from InnoVen Capital India backed by Singapore’s state-run investment arm Temasek Holdings Pte Ltd.
He said, “We have been able to survive as we conducted business in a more sustainable manner. We didn’t give discounts and this is one reason why we have been capitalised well. The best part is that all our investors have come back and invested some more in us, and that shows great validation of how well we have been able to execute the idea that is Swiggy.”
Considering the recent scenario in the food-tech industry, Swiggy, instead of testing the waters in new cities, is looking forward to consolidating its position in the seven cities it currently operates in – Mumbai, NCR, Bengaluru, Pune, Chennai, Kolkata and Hyderabad.
“Currently, we are profitable in two of our key markets. So, we have already proven our capabilities and soon we will be profitable in other markets as well,” said Reddy.
He further added, “Right now we want to consolidate our position in all the seven markets that we are present in and we are aiming at profitability. At present, we don’t have any plans to explore any new cities. We would like to concentrate on these seven cities and gain market leadership here.”