How too-good-to-be-true offers crumbled food delivery company Foodpanda

Foodpanda
It was a frantic call. “Where are the orders? You had promised 1,000 of them,” said the owner of a popular dessert franchise in Bengaluru. 

“Sir, they will come. It will be 1,000 before the day ends, I promise,” says one of the area managers of Foodpanda. He left the company soon after this call. 

“It is 5pm and there is not one order.” 

There was silence. The area manager was at a loss. Why was there not a single order? The dessert chain was in one of Bengaluru’s busiest and most upmarket neighbourhoods. There were a mix of startups and residences. If anyone would order, they would. And especially because there was Crave Party on, which is a special offer Foodpanda ran offering deep discounts on food, especially dessert.

In December 2017, when Ola bought Foodpanda, it was the company’s second attempt at food delivery. It had made one before via Ola Cafe, which didn’t work. Ola had to shut it down and fire a whole lot of people. About two years later, Ola tried again, this time taking the acquisition route. It didn’t work either. When Ola bought Foodpanda, Bhavish Aggarwal, founder and CEO of the ride hailing company, went on YouTube to announce that he would be asking his close ally Pranay Jivrajka to be CEO of Foodpanda and he would spend $200 million to make the company a force.

In May 2019, just one-and-a-half-years since that pledge, Ola decided it didn’t want to be a marketplace anymore, it pivoted and became a cloud kitchen company. Where did the idea come from? It came from a small cloud kitchen company Foodpanda acquired in 2018 called HolaChef. The Mumbai-based startup had run out of cash and was forced to down shutters. Ola bought the company, essentially at zero value, after promising to pay off its dues. Ola is now adapting the model of that company for its new avatar. 

What brought Ola (and Foodpanda) to this point? 

In late August 2018, Foodpanda launched a too-good-to-be-true offer called Crave Party. It offered desserts at Rs 9, snacks at Rs 19 and biryani at Rs 79. These prices, Foodpanda’s decision-makers believed, would be able to take orders away from Swiggy, Zomato and especially UberEats. Once customers saw the superlative delivery standards and the prices, Foodpanda would become their default app. They already used Ola twice a day, they’ll keep opening the app for food. 

“The plan within the company was to make Ola like Grab,” said a senior Ola executive. Grab is the south east Asian ride-hailing company that bought out Uber from the region and has a food delivery, ride-hailing and concierge service. If Foodpanda worked, Ola planned to extend Foodpanda and expand it to grocery delivery as well. Very similar to another failed experiment, Ola Store. This was the entire plan. But this is how it unravelled. 

Let’s go back to the call. While there was these few seconds of uneasy silence, the area manager went through everything he had done. Did he miss anything? He hadn’t. He promised the owner he would get back to him within the hour. “I panicked and called head office in Gurgaon. They didn’t know why,” the former Foodpanda employee said. 

Over the next few hours, the employee got three more calls from other restaurants all saying the same thing. You promised us 1,000 orders. “I was later told the same thing was happening in other cities,” he said. The area manager was told that it was tech issue. A lot of restaurants who had signed exclusive deals with Foodpanda appeared offline to the customer. For that particular dessert chain, the restaurant didn’t come online for 21 days. The restaurant had to throw away the excess dessert it had ordered. “It wasn’t just that the restaurants had to throw out food,” said another senior former Foodpanda executive. “It was the deals that Foodpanda struck.” The food tech company was footing most of the discount bill. “If an ice cream cost Rs 90, they were giving it at Rs 9. Who was paying the balance Rs 81?” he asked. In most cases, it was Foodpanda.  “Sometimes, if a sales manager was good, he would strike a deal in which the restaurant would give a 20 per cent discount. But the majority of that discount was still being paid by Foodpanda,” he said. 

In other cases, Foodpanda made minimum guarantees in which the company promised restaurants that they would get a certain amount of business and if they didn’t, Foodpanda would pay 50 per cent of the shortfall. To a few small restaurants in Gurgaon, Foodpanda promised a revenue of Rs 1 crore. If Foodpanda could generate, say, Rs 25 lakh in the year. Foodpanda would pay the restaurant 50 per cent of the balance Rs 75 lakh. This happened a lot and it meant the cost per order in the larger sense rose. 

While the temporary loss per order could be absorbed, it opened up a new problem for the company. “We were mapping who was ordering at these prices. And they were not those fancy startups in Koramangala, but those from lower income neighbourhoods,” another former Foodpanda employee said. “There is nothing wrong in them ordering but if the majority was them then it starts to be a problem,” he added. The surge in orders that Foodpanda would see would fall away once the discounts were scrapped. Those customers were not the Foodpanda target audience. “It would be 10 per cent of peak. Not 10 per cent less but 10 per cent,” said a Mumbai-based former Foodpanda executive. 

Along with discount-driven traffic, Foodpanda also had to battle delivery executive unrest. “When it started, we were late to the game,” said one of the Foodpanda executives. Most delivery executives had signed up with Zomato and Swiggy. To poach them Foodpanda offered Rs 50 per delivery and some incentive per week. That’s when some delivery executives started to game the system. 

“Ok, so this was funny. The delivery guy would place an order for biryani at Rs 70 while standing next to the restaurant from one phone and immediately get the order on his other phone. He would basically be getting a full biryani for Rs 20,” said one of the former executives mentioned above. Foodpanda realised that this was expensive and then changed the fee structure. This meant that Foodpanda delivery executives, who were promised that they would make upwards of Rs 30,000 a month would get half that. Business Standard reported that delivery personnel were intending to strike. Foodpanda managed to avert that by ceding to their demands in part. The others just left the platform. During the unrest, a lot of Foodpanda orders would get delayed. “So even if we had managed to get a few customers, they would drop off too,” said one of the employees. 

During all of this, Swiggy and Zomato were able to burn faster and smarter. Foodpanda, meanwhile, struggled to keep its head above water. Soon, executives started to leave, investment in the company slowed down and Aggarwal and Jivrajka decided the best way to make good of a situation such as this would see if they could imitate the Faasos model of multi-brand cloud kitchen — that is, kitchens that have no dine-in or takeaway service but run on home delivery — and not list any other restaurant at all. And that’s where it is right now, $232 million later. 

Reports now suggest the company may open food kiosks at tech parks to drive up traction. Something Faasos already did and went back on because the rent and overhead costs were not covered by deliveries or in-restaurant seating. In a statement emailed to Business Standard, an Ola spokesperson said, “We want to take a holistic approach towards the food-tech segment that isn’t limited to food delivery. With our food business, we are aiming to build India's most loved food brands across multiple categories.”

Meanwhile, the erstwhile area manager still gets calls from restaurants saying their dues haven’t been settled.


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