Click to eat: Startups go digital to satisfy your gastronomical needs

At least six online food businesses have come up in the last two years and many more are in the incubation stage-clear markers that the space, while still in its nascent stage, is growing rapidly. These businesses, some of which are in the listings game while others are in the ordering business, are also attracting investors. Zomato, FoodPanda and DeliveryChef-allraised new rounds of investment in 2013.

Most of these funds are being used to bolster market share and scale i.e. they are being used for geographical expansion in India and abroad as well as for acquiring more customers and clients.

Zomato, which raised Rs 227 crore from Sequoia Capital and its existing investor Info Edge in November, will use the funds to expand their base from 11 countries to 22 countries in the next two years.

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In its one and a half year of operations in India, Rocket Internet-backed FoodPanda has expanded to 14 cities, with December 2013 launches in Chennai and Jaipur. “Our endeavor isto list as many restaurants as possible so the customers can have plenty of options to choose from,” said Rohit Chadda, Co-Founder and Managing Director, FoodPanda. The company currently has more than 3,000 restaurants listed on its website.

Food rush
It’s not e-commerce-2010 just yet, but the space is already teeming with multiple players and investors trying to grab a slice of the pie. Apart from the national players, there are many regional and city-based online food businesses in play as well, making the space more localized and also cluttered than others.

However, people in the space say that the Indian market is big enough for everyone to survive without getting into each other’s turf.

Ralf Wenzel, Co-Founder and Global Managing Director, FoodPanda says that online food ordering is a city-based business and India has no dearth of cities or towns that are becoming cities. “India can definitely accommodate more than one player. Now the realcompetition is about retaining customers and merchants,” Wenzel says.

One of the early movers in the space, Ritesh Dwivedi, whose 2006-launched online food startup Hungry Zone was acquired by UK-based JustEat in 2011, agrees and says, “The emergence ofseveral other players just seem to validate the initial business model we had come up with more than seven years ago.”

Most of these portals are working on either of the two models-revenue through listings or advertisements or through revenue sharing with restaurants where orders are placed through
the portals. Consequently, the current rush is to list or partner with as many restaurants as possible to woo a large base of customers.

Dwivedi says that each Indian city is different and behaves differently, so the approach should be different in each city. JustEat India is present in Delhi, Mumbai, Pune and Bengaluru and has more than 2,500 restaurants listed.

[caption id=“attachment_53662” align=“alignleft” width=“380”]  Rohit Chadda, co-founder and MD, FoodPanda. Amit Kumar.[/caption]

“What might work in one place may be a total fiasco in another city and so it takes time to fathom out the exact set formula for any area. We have managed to get the ball rolling well in Bengaluru and Delhi and are looking towards accelerating growth in other cities,” says Dwivedi, adding that JustEat India is profitable in Bengaluru and close to it in Delhi.

Break the phone
Of the two models in the space, online ordering is the one getting the most traction.However, many have questioned the viability of the ordering business. Given the low broadband penetration levels and the average Indian’s tendency of choosing a voice to interact with,some say these reservations are valid.

To combat this, those in the online ordering business are pushing lucrative discounts and deals to get more and more urban customers to gradually shift from ordering food over the phone to ordering online.

“We are hoping to convert people from the phone ordering market, which is expensive and cumbersome when compared to online ordering. We are trying to do that by incentivising theonline ordering habit,” Wenzel says, confirming that he is seeing a gradual increase in online orders in the markets they operate in.

Co-Founder of Mumbai based Delivery Chef, Aditi Talreja, is more bullish. She says that only three per cent of the firm’s orders come through phone.

“Coupons and offers play a major role there in persuading people to order online,” Talreja reveals.

Dwivedi says that the traditional phone has always been the biggest competitor. “When we began with JustEat, orders taken over the phone formed a large majority [30 per cent] of the total number of our orders. But the cost of operations is higher for phone orders. With smart incentives on online orders, we have now managed to bring it down to a mere one percent.”

Interestingly, most of these ordering businesses have not gotten into deliveries. “The cost to the restaurant for deliveries is much lesser compared to us having dedicated delivery boys. Volumes have to be very high for it to make economic sense,” explained Chadda.

For online ordering businesses, revenue is based on a complete transaction, and Chadda says this pushes them to make sure that every order is fulfilled.

“Even though we don’t do the delivery, we always assist and push them in delivering the food on time,” Chadda adds.

Ad-way
The ordering model does have its detractors over at the listings side of the divide. Deepinder Goyal, Founder, Zomato, says that industry figures reveal that out of five online orders, two fail as restaurants fail to deliver the food. This is because restaurants prefertheir direct clients compared to third party clients, he says. “Restaurants are busy during peak hours and that is when they would like to cater to their own full-margin customers over third party customers for whom they will have to give a cut,” says Goyal.

Interestingly, while Chadda says that he has never looked at listings and advertising as revenue generators, Zomato is said to be thriving on it. The company’s primary revenuestream right now is from restaurant ads and that appears to be a continuous and strong enough model for investors to rate it highly.

India’s online advertising market is projected to reach Rs 2,938 crore by March 2014, according to a report by the Internet and Mobile Association of India (IAMAI) and IMRB International.

While a direct corollary can’t be drawn for Zomato, as it gets ads from only restaurants, it does point to a stronger future.

“We are currently concentrating on just restaurant ads and nothing else is on the cards. We are quite happy with the results that we are seeing,” said Sanjeev Bikhchandani, Founder, Info Edge. Goyal says that the restaurants who advertise with them get 40-1,000 leads per month, as around half-amillion people visit Zomato every day.

On the other hand, B Hari, Member of the Indian Angel Network, who invested in HungryZone before it was acquired by JustEat, says that the gestation period in a Zomato-like business is usually one-two years. “In a model like Zomato’s, it takes time for you to build a clientele.

However, an online food ordering business should be profitable in one-two years,” he says.

Clearly, both the online ordering and listings models have their own merits, disadvantagesand patrons-you could debate it for a fair amount of time. What is not debatable though is that the space is now fully alive and kicking with more and more urban Indians getting comfortable with the idea of going online to find a way to satiate their hunger. According to Hari, the space is already worth more than a billion dollars.

This story first appeared in Entrepreneur India magazine.