The rapidly growing online food discovery and delivery segment has become the preferred investment destination for venture capital (VC) and private equity (PE) players in the country. The segment, which saw a bloodbath in 2016 with companies shutting or scaling down operations, many employees losing their jobs and a shrinkage in funding has now undergone a turnaround.
Major factors driving the comeback is a steady tweaking of business models and innovations by players in the segment. Apart from this, the entrance of cab aggregators like Ola and Uber into the potentially lucrative segment has also resulted in increased competition. Ola had acquired Foodpanda in December last year, while Uber had launched its own UberEats service for India in May, 2017. Both have grown sharply, with Foodpanda announcing this week that it now services 100 cities in India and intends to double the number of restaurants on its platform to 120,000 by January.
The food segment has undergone a seismic shift over the last few year, with an increase in the number of personal chefs, catering services, box-delivery, pop-up kitchen, on-demand-meals, and on-demand-chefs. According to market analyst firm Tracxn, 2018 saw the largest fund infusion into the Indian food tech industry ever, cumulating to over $851.28 million — a jump of over 449 per cent compared to $154.97 million in 2017.
The number of deals have fallen, however from the 36 recorded in 2017 to only 18 so far this year, but the quantum of investment has been much higher. The year also saw two players -- Zomato and Swiggy -- become unicorns (startups valued over $1 billion). At the current market rate, more companies are expected to acquire the status over the next couple of years.
Over the last 5 years, food-tech has received a total investment of $2.27 billion from PE firms, according to a VCC Edge report, with 2018 as the highest grossing year. The recovery is significant considering investment actually fell 46 per cent in 2016 compared to the previous year. The cash crunch had been one of the factor driving companies like Yumist, TinyOwl, Spoonjoy, Dazo, Eatonomist, among others shutting shop.
“Online platforms and the boom in e-commerce has made everything readily available anywhere at any time. This can be attributed to the changing demographics, changing customer preferences, increase in disposable incomes, urbanization, and growth of organized retail,” noted Sahaj Kumar, senior manager – Research, VCCEdge.
Apart from the rise in funding, daily average volumes handled is also seeing steady growth. The daily average volume in the July-September quarter this year was 1.2 million orders per day, with this number pegged to rise to 1.7 million in the ongoing October-December quarter.
RedSeer Consulting also records that the segment’s annual Gross Merchandise Volume (GMV) has nearly tripled from $600 million in 2017 to $1.65 billion this year. GMV is a multiple of the price charged for an order and the number of orders on a particular platform over a certain period.
With funds pouring in again and the market only expected to grow, food delivery firms are currently engaged in a rapid expansion to smaller cities and adding to last mile delivery strength.