Too good to be true?

I returned home from work on a Friday evening, feeling completely drained in the Delhi summer heat. Have you noticed how sometimes you are so tired and hungry, but you can’t decide what to eat when the temperature breaches the 45 degree celsius mark? I picked up my phone and ordered food through a popular food delivery app, and before I knew it, within 35 minutes, I had my favorite food, hygienically packed and delivered piping hot, to my doorstep, for less than Rs. 500! Too good to be true? That’s what got me thinking…

And analyzing….

And writing!

How is it that suddenly, food delivery app’s have mushroomed, which can actually make money, delivering food after offering promotional discounts? The answer, funding! But wait… the next logical question then comes – how do investors make money? Analysts say, investors make money on the valuation.

That is true. But let’s take a closer look.

My eureka moment struck on Friday, when I observed that these companies are not just in the business of making money. They are in the business of changing habits! Do you remember that dialogue from the movie based on the Mc Donalds story titled The Founder? It said and I quote, “You are not in the business of hamburgers. You are in the business of real estate!” This movie had a profound impact on my thoughts. More on this later.

So, when we look closer, by providing the service of home delivered food at such prices, these companies have given people the convenience or rather the choice of not having to cook. Think about this for a moment. Now, millennials can plan their life in a manner that they may not have to hire a cook, but could technically work out options to simplify their life, by appointing part-time help, and ordering in, eating exactly what they want everyday, not having to shop for and maintain groceries and all this while keeping their budget in check! Until five years back, people did not have this choice!

What more could one ask for, right?

What’s the big deal and why I am writing this article then? The question is, for how long will the party continue? And what will become of us by then? In marketing, we learn that habits once formed, are the hardest to change. This is the crux of the matter. Once people get used to something, and a habit forms, it is extremely difficult to change. And that’s what these companies are directly or indirectly doing.

Allow me to explain. Have you noticed how on some popular grocery delivery apps, despite the discounts, several items are actually more expensive that the brick and mortar shops? Surprised? Yes, its true. And its also true, that by now, we are so used to ordering online because of the sheer convenience, and getting happy with the discount, that we have stopped checking prices in regular shops. It happened with me, and that’s when I realized these companies had actually been increasing the prices slowly. Almost, imperceptibly.

It reminds me of the case study with chips, in which a bag of chips still costs Rs. 35, however the quantity reduces ever so slightly. And over a period of time, the quantity keeps reducing. But the customer is not able to tell. In the customer’s mind, he/she is still paying Rs. 35 for a bag of chips. And a whole lot of air!

So what am I saying here? These investors are in the business of increasing valuations, however they are also in the business of changing habits. Imagine, 10 years later, once habits have changed, and social structures would have changed correspondingly (cooks would have re-skilled to get other jobs because fewer people would hire cooks, and eventually the few cooks who will remain will cost more and so forth), so eventually, people can’t go back. Then these companies could charge higher prices, controlled only by market forces of competition and demand and supply, leaving us in a trap.

Look to the West. The youth are highly stressed about paying their credit card bills, student loans, and they are facing runaway inflation with regard to items in their consumer basket such as food, transportation, clothing, shoes, eating out. Compare this to India, where food and domestic help used to be relatively inexpensive. Our youth is now getting trapped in an endless cycle of spending.

A similar example is with car hiring apps. Many people are not buying cars or appointing drivers, because they prefer to use the car hire app. A recent article in The Economic Times, confirmed that auto sales have hit an all time low this year, because people are depending on car hire apps and soon auto companies will have to reinvent themselves.

So what is the takeaway from this article? Enjoy the convenience and the pampering, but keep an eye on the prices! As consumers, it is in our hands to switch operators and ensure they keep their prices down. Also, don’t automatically assume that just because you see a discount online, the item is a good deal. Check the price at local shops as well. And, enjoy the party till it lasts!  

Disclaimer: The views expressed in this article belong solely to the author, and not necessarily to the author's employer, organization, committee or other group or individual.