When Shachin Bharadwaj was in the information technology sector, his colleagues and he often worked late nights. Frequently, they faced problems in ordering food, due to lack of information on where to order. Bharadwaj often thought if this could be done online, it would make the process easier.
In October 2007, Tastykhana.in went live, with Bharadwaj as founder and chief executive. About six years later, its peers in the online food delivery business include JustEat.in, DeliveryChef.in, Titbit.com and Foodpanda.in.
This segment has seen a lot of activity, in launches and private equity/venture capital investments.(HOW THEY STACK AGAINST EACH OTHER)
How it works
Some websites such as JustEat.in also offer the option of table booking. Ritesh Dwivedy, founder and chief executive of JustEat India, said a recent offering by the company was online food-ordering apps across the Android, iPhone and Windows 8 platforms.
Some portals such as Titbit.com also offer a system through which they send instant alerts to restaurants. Rohit Chadda, co-founder of Foodpanda.in, said the company provided customers a number of deals, discounts and freebies, adding the latter would be deprived of these if food was ordered from restaurants directly.
Though these services are free for customers, the websites charge restaurants a commission/fee for orders sourced through them.
Ameya Hete, founder and managing director of Titbit and Titbit Interactive Systems, said, "We don't charge our customers anything but we get a commission from the partnered restaurants for all the orders we generate for them. On an average, 2,000 customers visit the website a month."
Experts said portals such as Titbit.com have an advantage in that they aren't involved with food delivery alone but are engaged with restaurants in other initiatives. A senior private equity (PE) fund executive said since Titbit had an increased engagement with food providers for their digital menu initiatives, roping in new clients wasn't difficult.
Food delivery platforms have attracted a lot of investors. In May 2013, Foodpanda had secured about $20 million (Rs 108 crore) from a group of investors, including Investment AB Kinnevik and Phenomen Ventures.
Apart from old funds, additional rounds of funding are also being looked at. Aditi Kapur, co-founder of DeliveryChef, said the company early closed an investment round from an investor based in Silicon Valley, US, adding the investor's expertise would boost business scalability. "We will be looking for more funds early next year," she said.
In August 2008, JustEat raised its first round of investment through the Indian Angel Network. Recently, the company recorded one of the largest investments so far from JustEat Holdings, Forum Synergies and Axon Partners Group.
Mergers and acquisitions are also happening in the sector. In October 2012, Titbit acquired foodkamood.com, a food delivery portal for areas in south Mumbai.
In June 2013, Delivery Hero partnered TastyKhana, investing Rs 30 crore in the company.
Now, food delivery companies, including DeliveryChef, TastyKhana, Foodpanda, Titbit and JustEat, are looking to expand to smaller towns and cities and add more restaurants to their list. Bharadwaj of TastyKhana says the priority is to have better coverage across cities. "We will generate business of more than Rs 10 crore this financial year; we intend to touch Rs 100 crore by 2016," he said.
Companies such as Titbit haven't raised funds yet but officials from PE funds say given their technology stronghold, funding shouldn't be difficult. "We have not had fund-raising yet; the capital invested has been from internal accruals. Our first goal was to prove the business model in one city and replicate it in others," said Hete.
According to Foodpanda's Chadda, the food delivery market was pegged to grow to Rs 5,000 crore by 2017. "We target to capture 10 per cent share of that market," he said.
A mentor for start-ups in the food and beverages business said in this segment, the crucial aspect wasn't just the number of tie-ups but how sustainable a business model was. "Since exits are difficult in this space due to the smaller size of businesses, due-diligence would be much more stringent," he said.
At a time when the food sector is clocking annual double-digit growth, it is expected this will translate into immense opportunities for food delivery portals. Whether all these companies are able to sustain remains to be seen.
The online food delivery business is one of the fastest growing e-commerce sectors across the globe, with the convenience of getting multiple cuisines at various prices in a few clicks. Big food chains such as Pizza Hut and Domino's, which had already invested in delivery infrastructure, found adding the online element had multiplied their ordering business. Seeing this, independent players have also come up with smartphone apps and delivery services.
In India, too, metros have seen the rise of food delivery companies, owing to the increasingly global tastes of the young workforce. Foodpanda is reportedly the largest player, with operations in 12 cities; others such as DeliveryChef, TastyKhana and JustEat are all in the fray to cater to the ever-rising numbers ordering food online. It is estimated this market will grow 30-40 per cent a year to an astonishing $6 billion in a couple of years. Most of the leading players are reportedly doubling revenues every year. These are early days for this sector and, not surprisingly, new entrants, too, are recording good revenue, though at a high customer acquisition cost.
Niche plays in e-commerce do have a high cost of customer acquisition but higher margins enable these to have better chances of recording break-even compared to mainstream players. However, as the market gets crowded, even within this niche segment, with horizontals such as JustDial entering, margins are bound to start tumbling; only a few will be left smiling when that happens, perhaps in not too distant a future.
The author is co-founder and chief executive of Lead Angels, a Mumbai-based angel network