Startup India: Food-tech sector has seen ups and downs, but still promises to grow
As per data compiled by Tracxn, there were 335 online ordering start-ups in India at the end of 2015
By Pradeep Prabhu
Earlier food-tech meant technology that focused on preservation, processing and manufacturing of food, but in 2015 the definition changed thanks to well-funded online food-ordering companies who began splurging their money. While for many, this was the first time they heard the word food-tech, the (r)evolution has been brewing in the country for a while.
The birth of food-tech
Till a while ago, food enthusiasts would wait for annual food guides and eating-out directories of restaurants. These publications had expert reviews, opinions and vital information to dine in the city and were pretty much the epitome of lifestyle.
2006 saw a significant change in the landscape with the launch of Burrp, who could be credited as the pioneer in the food-tech space. This was the first time a company was trying to bring technology to the restaurant-discovery space.
Most of the information that used to be published in the annual directories was now available digitally. Burrp also relied heavily on the wisdom of users who could voice their opinion and experience through reviews. The strong user-generated content made Burrp the go-to destination while searching for a restaurant.
While there were many other stronger companies that entered the fray, most publishers of the annual directories could not see the shift to digital and missed the evolution from print to digital.
Food-tech moves to transactions
Modelled on the success of Yelp in the US, Burrp was very successful in its initial days. Its initial business model revolved around charging businesses a fee for premium listings, banners, affiliate ad revenues and a combination of SMS marketing. These were early days when smartphones weren’t as popular as they are today.
With a big push from smartphone-driven Internet growth, companies in the food-discovery space realised that these business models do not have the potential to scale up substantially. While many realised early on, several others dabbled and lost their edge.
Start-ups in 2012 started offering discount coupons, incentives with online-ordering services. While there were many smaller players who pioneered in this market, the sector was primarily led by Foodpanda. As per data compiled by Tracxn, there were 335 online ordering start-ups in India at the end of 2015.
This was the first time that companies were focusing on enabling transactions in the industry. Many strong food-discovery players, for different reasons, missed being part of the evolution from listings to transactions, including Burrp.
What next for food-tech
These are still early days for food-tech. In all my interactions with various stakeholders, I have maintained that food-tech is a booming sector. India’s food services market is vibrant and worth $48 billion; of which the organised food services market is valued at $14 billion and this is growing at over 25 percent. Food is over half of the consumption basket and demographics are bringing a change in consumer tastes and behaviour. Why wouldn’t an investor see an opportunity?
People cite that funding crunch and the recent breakdown has raised concerns over this sector, but this is only a natural thing to happen in a growing industry. The food-tech ecosystem hasn’t evolved yet, however it has grown much faster than what many players were anticipating. Food-tech will mature, but this will also mean that many apps and websites will shut-down and only serious players will stay.
Companies that are being funded aren’t funded for the right reasons. Today, a bar conversation between two VCs revolves around how many start-ups either of them have funded, or whether they have a food start-up in their portfolio. A mere portfolio-risk approach towards investing will not last.
This conversation needs to be more serious, where the investment process is so rigorous that you are able to identify early winners in the space and back them whole-heartedly so they last. Investors need to find partners, customers, be in sync with the core team and guide them. 2015 briefly saw a breakout from the usual pattern of backing teams with vision versus the idea. This will change in the next 2-3 years.
Entrepreneurs on the other hand need to be more serious about their businesses and identify real problems than follow the herd. Food-tech is a tale about the perfect marriage between the merchant and the customer. There has to be a fine balance between both. Well funded start-ups need to slow down to build the right systems, processes and identify young leaders in the team.
Let the conversation at the bar be about finding the right talent for the company than bragging about the number of positions that need to be filled. Raise only enough money to reduce risk or create traction and scale only when you need to. This will also help entrepreneurs to retain significant equity share in the company. If investors see value, they will follow through on the next round of funding.
Start-ups being funded at angel and VC stage aren’t a reflection of a vibrant sector, but many entrepreneurs venturing out and thinking that food-tech has a future, definitely is. In the world of start-ups, nothing is certain. 2016 will see a new wave in a new sector. Food tech will shutter and experience turmoil due to unsustainable unit economics. There will be consolidation and shake-up of “Me-Too” business models.
While the Startup India is a welcome move and many foreign investors will take notice of Indian start-ups, what we need is better infrastructure and Internet penetration. The
government should ensure that these issues are ironed out. Entrepreneurs too will feel more confident of realising the potential of their ideas in India rather than look for opportunities abroad.
The author co-leads the transformation at Burrp as the Co-Business head and drives sales, marketing and operations.
Burrp is owned by Network18 (which also owns Firstpost)
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