The explosive growth of food delivery in India?—?Part 1

In last few weeks, I have read countless tweets and posts around the explosive growth of food delivery of India. It started with a blog post from Deepinder Goyal regd Zomato delivering over 23M orders in a month.

Startups in food delivery started on a high note in 2015 with Swiggy, TinyOwl, Eatlo, Holachef, FreshMenu and many more raising VC money and in hyper growth mode. However the growth was fueled by unsustainable discounts and expanding too fast without setting up the basic operations right. The big casualty of this was TinyOwl which scaled down operations from multiple cities to just Mumbai and then finally merging with RoadRunnr. The layoffs resulted panic among employees of TinyOwl and a co-founder was detained for 2 days.

But online food delivery makes a fantastic marketplace business — natural demand for food delivery, highly competitive and fragmented restaurant supply and perceived lack of trust and transparency on restaurant quality (taste and hygiene) and service (delivery)

All it needed is a reliable delivery mechanism and business will start booming. Swiggy took the approach of managing its own fleet of delivery executives. Zomato relied on a hybrid approach where some restaurants delivering it themselves. Deepinder Goyal’s informative post on food delivery economicsthrew insights and reasons behind this strategy. Zomato later moved to own delivery fleet post acquisition of runnr, a b2b delivery startup. There has been no looking back….

While food deliveries continued to grow over 100% in past 3 years, year 2018 is the watershed moment with astounding 300% growth. I would not be surprised if it hits 5x growth by December 2018.

The food delivery growth throws quite a picture when compared with e-commerce sales in India. It becomes interesting when these are compared with numbers from China.

What fueled this growth? There are a few reasons why food delivery growth over the years has been quite significant compared to e-commerce growth in India —

• From a predominantly single player market, it now a 4 sided war between Swiggy, Zomato, Uber Eats and Foodpanda. This resulted in aggressive discounting each trying to grab a large market share, be it the crave party of Foodpanda, #NoCookingSunday from Zomato and special deals from all players
• Year 2018 also witnessed a strong fight in payments space between AmazonPay, GooglePay, Phonepe and PayTM. While GooglePay and Phonepe are betting big through their UPI platform, AmazonPay and PayTM are aggressive in making their wallets highly liquid. Both are now also going berserk through UPI route. All this is resulting in discounting and cashbacks across online and offline merchants
• All food delivery companies have expanded rapidly from metros to tier 1 and tier 2 cities, covering more restaurants and on-boarding larger delivery fleet

• Increased user propensity and comfort to buy food online

— Ordering food online is just an extension to an existing behavior of ordering it via phone. Food deliveries used to happen even before Swiggy and other online food delivery startups started delivering it. This was a small behavior change

— The Average Order Value of INR 200–300 makes it far more easier for new users to trial. With discounts the ‘AOV’ goes further down to sub-100

— India also has many densely populated cities. Rapid urbanization and inadequate infrastructure support is resulting in traffic clogged cities. Who would want to travel out regularly for food?

— Fresh college graduates joining the workforce either don’t get time to cook or don’t know cooking. They used to eat in nearby quick service restaurants which are limited by choice and cuisine. It is no wonder that this age group was the early adopter and now the dominant customer segment for food delivery companies

— There is also desire to eat food from restaurants due to perceived gap in the taste of home versus restaurant cooked food as well limited cuisines that can be cooked at home

— Reliable delivery also brought trust among consumers and that further led to increase in order repeat rates

While offline-to-online movement will continue to drive hyper growth in this industry, the erstwhile competitive moats are now the table-stakes. What would be the new competitive barriers that food delivery companies need to build? Do check out my next post!

This post first appeared at medium - https://medium.com/@deepak.malani/https-medium-com-deepak-malani-the-explosive-growth-of-food-delivery-in-india-part-1-a33b5a822ec7

References

• India ecommerce does about 2.2M — 2.5M orders a day. This roughly translates to about $12B — $15B of GMV, 2% of overall India retail market
• China e-commerce stands at a mammoth size of 130M orders a day
• China food delivery is about 40M orders a day
• Zomato has 74000 delivery partners