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Cash burn for ramp-up & customer base hurts food start-ups

Karan Choudhury  |  New Delhi 

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The push to ramp up operations, acquire customers and increase headcount has caught up with online grocery retailers, which are finding it difficult to sustain their initial growth, funded by venture capital.

It has been a roller-coaster ride for a host of restaurant locators and delivery service providers like TinyOwl, Foodpanda and Zomato, and e-grocers like Localbanya, which has temporarily ceased operations. Around 600 people have been laid off by TinyOwl and Zomato.

"They all have a business model that depends on deep discounts. Holding on to customers is difficult as they move to the next best deal. Their deep discounting has made their investors anxious," said Rohit Bhatiani, director, Deloitte in India. Like fashion and other verticals, consolidation is due in online food retailing as well, according to Bhatiani.

The investment climate, too, has changed considerably in the last few months. "For restaurant locators, delivery service providers and e-grocers like us, big funding rounds have become rare. Companies burnt cash to scale up and hire people and now they have no capital left to run operations," an industry source said.

Other e-grocers have started cutting down on flab. "It is not that we have done everything right. We are hiring but at the same time letting go of people who are not performing," said Navneet Singh, chief executive officer (CEO) of PepperTap, an on-demand grocery delivery service.

PepperTap recently raised $36 million in Series-B funding from Snapdeal, Sequoia India, SAIF and other new investors, taking its total funding to $47 million.

Venture capitalists believe these companies, which work on thin margins, need to have a clear plan on revenue generation. "Having a great idea is not enough, having a sound revenue model is also important. Most venture capitalists are looking for returns in 18-24 months. A funded company should know how to generate revenue," said Shekhar Purohit, CEO, Ninestarters, a holding company for emerging fashion and lifestyle start-ups in India.

"The order size in e-fashion is higher than that in e-food, so our margin is higher. But we started 15 years ago and online grocery is new. It will go through the problems we faced and the ones who survive will remain," said Darshan Patodi, co-founder of

  • TinyOwl: Online food ordering start-up going through restructuring as it battles cash crunch. Reports say the start-up might have laid off 100 more employees, after it fired 200 in September
  • Zomato: The restaurant locator and delivery service provider reportedly dismissed 250-300 employees, most in the US, as part of a global restructuring.

  • Foodpanda: Rocket Internet-backed online food ordering company Foodpanda Group's Indian arm facing issues related to fraud and failure of their system. Also there has been a lot of churn in the senior management.

First Published: Fri, November 06 2015. 00:37 IST