Foodpanda is offering desserts for single digits, Uber Eats unloads discounts and offers ever so often. Zomato and Swiggy are both burning through cash to compete with each other when it comes to the number of deliveries and are offering cash incentives to the delivery personnel to stay loyal. The conversation about profitability seems to have died down, CAC is high again.
The question is: Is there another bubble forming? Are there changes from what happened in 2015? Have people learnt?
Yes. And not really.
Is there a bubble forming? Business Standard put this question to food tech entrepreneurs and investors. They all said things may be getting hot, but there is no bubble. So, let’s look at the data once again.
According to Tracxn, there have been just 13 transactions until year-to-date. Transactions here refer to a company raising money from an investor. Some companies
may have raised multiple rounds. Compare this to 2015, which saw 66 transactions.
This is a time to pause. Why? What has changed? According to Revant Bhate, partner, KStart, a lot. “Companies, which have a proven business model, which can function at scale have raised money,” he says. There is a distinct difference from the last time around when cash was easily available but there was very little focus on the business model. There were companies
that raised cash, he explains, with little to no addition to the business model. The moats were weak or non-existent. “Now, companies are being built on need,” he adds. Be it Swiggy or Zomato, the two big boys of the food tech ecosystem, both have managed to solidify one part of the food experience. Swiggy did it through its logistics network and Zomato through restaurant aggregation (and now also through logistics). And Swiggy is evolving. It is trying to be much more than just food delivery. Zomato, too, has evolved. The ones raising cash are also cloud kitchens like Faasos and Freshmenu. Both rely on their own logistics services. “There is also a change in the type of investor. Back in 2015, the capital was not as patient as it is now,” Bhate adds.
The metrics within companies have changed too. It isn’t just about customer acquisition anymore; it is about retention. “In 2015, the discounts were to entice the customers online. Now, it is to make them use it over and over again,” says Saurabh Kochhar, once a founder of Foodpanda. And there is a granular difference between these two behaviours. One is the simple act of ordering, the other is habit formation. “If our super user orders twice a week, we are very happy,” says Rashmi Daga, founder, FreshMenu. And there are much more of them.
“It is good to look at 2018 food tech as e-commerce from 2015,” adds Kochhar. The big companies have settled on the business models and now it is up to them to prove it can work for a prolonged period of time on massive scale.
But just like 2015, e-commerce repeat users were driven just by discounts. These discounts did nothing but bleed the company. When the discounts were removed, the customers went away. The companies struggled and many faded into irrelevance. But the argument is that food tech will do better. According to people at Swiggy and Zomato, the number of orders a month is primarily generated by existing users. These companies are adding new customers every day but those who stick on order much more often. And if the discounts were removed one day, they would be so used to not cooking, they would keep ordering. Food, they say, is much more habit forming than buying a phone.