Will food throw up the next Flipkart?

Potential of online food ordering market pegged at about Rs 95,000 crore; competition among quick-service brands likely to intensify

Malini Bhupta Mumbai

Convenience and value are the two key factors that have led to the exponential growth in online commerce. After e-retailers brought the best fashion brands to doorsteps of consumers, aggregators like Zomato, TinyOwl and FoodPanda are promising to do the same with gourmet delights. After electronics and fashion, the next retail segment to go online is the food business.

The organised food business in India is worth $48 billion, or Rs 3 lakh crore, of which food delivery is valued at $15 billion (Rs 94,755 crore). With online food delivery players like FoodPanda, TastyKhana, TinyOwl and Zomato building scale through partnerships, the organised food business is headed for some exciting yet turbulent times.

Food aggregators are nothing but marketplaces, which bring together consumers and organised and unorganised food makers. Small and big players are viewing this channel with great interest as it reduces the cost of acquiring customers substantially. Typically, 30-40 per cent of revenue of any food business is spent on marketing, but with these platforms, the cost of customer acquisition drops down.

But this also means that the market leaders can no longer take their position for granted because competition is set to explode and rivals can reach more places than before with these platforms.

Domino's started its online delivery channel in 2011 before others and today online ordering accounts for 30 per cent of its delivery business. Harneet Singh, vice-president (marketing) at Domino's Pizza, says both the mobile app and online ordering are seeing high double-digit growth. Domino's does 50,000 deliveries in a day, of which 15,000 are ordered online. That simply gives a sense of the potential of the market.

Domino's, which currently has 73 per cent of the organised pizza market, is a behemoth in the space and it sees tremendous potential in food aggregators as a channel to reach consumers. Though the online aggregators today account for a small portion of the deliveries, Singh expects this channel to grow, which is why Domino's has tied up with FoodPanda.

Explaining the sudden explosion in online food aggregator businesses, Saurabh Kochhar, CEO of FoodPanda, says: "The reason behind the excitement is that as a space it is untouched. As a category, food is an essential item and there is a repeat business potential. Everybody is trying to grab a piece of the pie of the food business. Food delivery is a big business in India and the next Flipkart can come out of this category."

More reach
Online food aggregators or marketplaces are a new distribution channel for food brands. Akhil Puri of New York pizza chain Sbarro believes online aggregators give brands additional channel to access customers. "We get to penetrate areas where our reach is limited through these channels."

Faasos, another food brand, processes 60,000 orders a month that come through its mobile app. Rohit Bhate, co-founder of Faasos, says: "Over the past one year, there has been exponential growth in the number of people ordering food on the mobile phone in India."

  • Rs 3 lakh crore Size of the organised food business in India
  • Rs 94,755 crore The addressable delivery market
  • Food business has a higher propensity for repeat customers
  • Brands like FoodPanda, TastyKhana, TinyOwl and Zomato are rapidly building scale to capture higher wallet-share of consumers
  • Ola Cabs launches Ola Cafe, its food delivery business, in key metro cities
  • Domino's does 50,000 deliveries in a day, of which 15,000 are online orders
  • TinyOwl currently receives 2,000 orders a day in Mumbai; to expand to top metros by May
  • FoodPanda has 12,000 restaurant partners on its portal and is present in 200 cities
  • Food aggregators have higher penetration levels and wider reach

The convenience has brought known and unknown brands on these platforms. Going by the numbers of players like Domino's, the potential for online food ordering does sound credible.

But online food aggregators are as much of a risk as they are an opportunity for organised food brands. Thanks to these platforms, competition is becoming fierce between brands and customer acquisition is no longer such a big problem. These platforms are delivering consumers on a platter to emerging and newer food brands who want to capture a larger slice of the market.

Therein resides the risk for entrenched players. A price war could break out in a bid to increase market share. Abneesh Roy, associate director (institutional equities research) at Edelweiss Securities, says: "If FoodPanda does high advertising and offers cash back, buy one-get one and flat offs, it can potentially become a strong platform and can be the Flipkart/Amazon of online food ordering. We believe this can be a significant threat to companies like Pizza Hut, Domino's since it gives the consumer a variety of options to choose not only other pizza players but other cuisines as well."

Harshvardhan Mandad, CEO of food aggregator TinyOwl, says home delivery today accounts for 10-15 per cent of total sales of most quick service restaurants but it is expected to increase rapidly over time. Users are asking for a lot more home deliveries and as a result Pizza Hut, KFC and McDonald's have started delivery too.

In fact, Starbucks has also started delivering for its loyal customers. In India, Starbucks is still in talks with some aggregators. Krispy Kreme has tied up with TinyOwl in Mumbai to improve access.

Here are some of the figures. FoodPanda has 12,000 partner restaurants on the website and is currently present in over 200 cities. TinyOwl, which is in the process of starting delivery business in Pune, Hyderabad and Bengaluru, delivers 3,000 orders in Mumbai daily. Zomato, which is expected to start taking delivery orders by March, expects to tie up with 10,000 restaurants across India.

The model is one where the aggregator charges a small fee or commission per order executed through the website or app and the order is completed by the food brand or restaurant.

Given that these platforms are heavily advertising to increase traffic, new brands are happy to ride the wave to find customers. TinyOwl's Mandad says many brands are coming to him and asking for help to increase their penetration or help increase market share. "We can do that by giving them higher visibility or through promotions. That is the beauty of the platform. We can go hyper-local and deliver customers," he says.

There's plenty of money to promote the website, app and the brands.

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First Published: Apr 13 2015 | 10:30 PM IST

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