Swiggy gets $100 mn funding, Zomato $200 mn: Food delivery sector heats up again
The food delivery sector is on course to hit $1.5 billion by the end of 2018 and $2.5-3.5 billion by 2021 in GMV terms.
With Swiggy getting $100 million in funds and Zomato $200 million a week ago, the food delivery sector seems to be poised for growth again after a bleak couple of years.
From the latter half of 2015 through to 2016 and also the first half of 2017, a number of food-tech startups shut down. Remember TinyOwl, SpoonJoy, Eatlo among others? But the industry emerged with new learnings on account of several startups shutting down and with improved focus on consumer satisfaction and key geographic areas, said RedSeer Consulting.
Zomato and Swiggy have had steady growth throughout 2017 with improved operations by reducing delivery costs and time and innovations like cloud kitchen, said industry experts. The market has been growing steadily in the last four quarters and the consistent performance by Zomato and Swiggy has led to investor confidence and the investments, they said.
In the latter half of 2017, ride-hailing app Ola (owned by ANI Technologies) decided to get into the food delivery space again, this time around by acquiring German-firm Delivery Hero’s Foodpanda India. The pendulum seemed to be swinging positively since then for the food delivery sector in India.
RedSeer Consulting predicted the food delivery sector is on course to hit $1.5 billion by the end of 2018 and $2.5-3.5 billion by 2021 in GMV terms. The sector valued at $750 million is expected to grow well. The food-tech industry is growing at a 15 percent quarter-on-quarter rate and the players are moving towards self-fleet to have a better overall control on the consumer experience, it said.
Now Swiggy, the food ordering and delivery platform, has raised $100 million in Series F funding, its largest round yet. “With this funding, we will further invest in building differentiated offerings, plugging the white spaces in the ecosystem, and developing our technology while keeping superlative customer experience at the core,” said Sriharsha Majety, CEO, Swiggy.
A week ago, Zomato raised $200 million from Ant Small and Micro Financial Services Group, the Mint reported, valuing the company at about $1.1 billion.
"The amount invested in Swiggy and Zomato is significant and I am sure six months later, there will another similar amount being raised," said Arvind Singhal, chairman and managing director of Teknopak Advisors. But Singhal predicts that six months later, there will another similar amount of funds being raised. “However, let’s not forget UberEats is also there. There are quite a lot of others too in the game but Swiggy, Zomato and Foodpanda currently lead the pack,” he said.
Is the food delivery sector looking bright again? Looks like the food tech sector is back in vogue, said Paula Mariwala, Partner, Seedfund and Co-Founder, Stanford Angels. With a lot of gunpowder now available in the hands of the major three players in the sector—Foodpanda, Zomato and Swiggy—growth is expected to be exponential. Mariwala is surprised though at the funding that food delivery startups have been getting recently. “I thought people are waiting and watching before investing in the sector. But for sure, the focus is back on profitability. There is a matrix put on profitability. I am sure the funds have been on a caveat. With the kind of funding given, I expect consolidation and focus on unit economics,” she said.
This is a moment for the industry to be more aggressive, said Rohan Agarwal, engagement manager at RedSeer Consulting. It will pan out in two ways. The market will grow beyond the top 5-6 metros and more markets will open up in places like Ahmedabad, Jaipur, Kochi, Chandigarh among others, he said. This will require capital and that is where the funding received by the players will help, he said. "The funding will be utilised in the expansion of the new markets and garnering higher volumes by innovating the model," Agarwal said.
The three main players in the food delivery sector have now recapitalised and raised money. "Rightfully then, food reviews will be a big bet in India and those who are adept in terms of logistics, technology, etc will lead," said Singhal. All the three players have technology in place in the context of merchandise and exclusive labels which distinguishes one from the other, he pointed out.
In fact, Zomato and Swiggy have been extensively using data and building cloud kitchen verticals. These are known as mini-kitchens that only service online food delivery where chefs from other partner restaurants can come and cook.
Though having deep pockets will help these players to scale up soon, it will widen the space between the competitors, said Harish HV, partner, Grant Thornton. But what is important is to provide efficiency and reach, he said.
Echoing Harish HV, Devangshu Dutta, chief executive, Third Eyesight, a consulting firm said, in the final analysis what the customer and the restaurant on board any of these food tech platforms are looking for is quick service and promised delivery on time. "If this promise is not delivered, having cloud kitchens or any other technology won’t help."
Dutta says to call food delivery startups as tech startups is a misnomer. He says that they are basically in the logistics game.
What consumers can look out from the ecosystem is better pricing, variety and a wider choice and better or quicker and reliable delivery. Each food delivery operator will have to offer slightly different merchandise with brands and discount. There may be an overlap of restaurants and kitchens in all three food delivery startups but service will be the differentiator.