But can they survive in the long run?

Missing home-cooked food Some food-tech startups have cracked the code by filling the gapImage source: Tinmen Facebook page
Atom Startups Thursday, June 29, 2017 - 18:14

Chaitanya Degala and Mukesh Manda, working in an MNC, were sick of food at the canteen and food court. Similar was the case with Saurabh Saxena and his wife who were sick of ordering food and eating out since they didn’t cook.

And this is something that resonates with most employees working away from home. Lack of home-cooked food is always an issue. And that’s the problem Saurabh set out to solve with Holachef in Mumbai, and Chaitanya and Mukesh with TinMen in Hyderabad.

Since the year 2014-2015, the food tech space has seen a lot of developments. A number of delivery startups sprung up at the time but few have survived till date.

Another type of food-tech startups that were founded around the same time were startups delivering home-cooked food prepared by home chefs picked by them. Then there is the Kitchen-in-the-Cloud model, where a startup runs its own kitchen and delivers food.

While survival has been tough for the Swiggys and FoodPandas of the market, what is working for these startups?

Gagan Goyal, Partner at India Quotient says that the main difference between these startups is that startups like Swiggy are just like a marketing platform. They sell someone else’s product and earn a commission of 5-15% on it.  A lot of money has to be spent on customer acquisition.

“In the case of startups like Holachef, TinMen, Freshmenu, they are selling their own product and it’s mostly their own resources. While more expertise is required, the best part is that you can make money. You are not making mere commission, but are selling the product and making money from it. The unit economics are better,” he adds.

More importantly, startups that make food and deliver have a strong control over quality.

So what are these startups?

TinMen was founded in August 2015 with the idea of providing affordable home-cooked food.

It sells home-cooked food make by home chefs at their residences. “We usually collect samples from them first and personally taste them. If we like it, then we ask them to get registered with Food Safety and Standards Authority of India (FSSAI) and only then bring them on board. This is to ensure the food is of high quality, says Prabhat Kumar, head- business development at TinMen.

TinMen does not take instant orders. Food has to be ordered at least the night before. One can even schedule dinner for the week.

However, in the case of Holachef, orders can be placed instantly.

TinMen says that it did not adopt an instant-order type of a model to ensure that inventory is not lost with the chef. “We don’t want chefs to lose anything or food to be wasted. So we send them orders for them to prepare accordingly. We target clients who can plan their food for the next day,” Prabhat says.

TinMen has 40 chefs and pays the chefs based on the number of orders they prepare and chefs are paid on a weekly basis.

“It is slightly difficult to be profitable in this space because of delivery costs. But in the case of startups like TinMen, the fact that they started off doing only group deliveries would help them bring down delivery costs and will help them become profitable sooner,” says Rajeev Menon, Partner Anthill Ventures.

TinMen started off by targeting only large office spaces. However, it now delivers to houses as well if it falls within its delivery range.

Orders are sent to chefs the night before. Once the food is prepared on the day, TinMen’s delivery boys pick it up from the chef’s place, bring it to the company’s hub from where it is delivered to customers.

While Holachef started off with a similar model where food is made by chefs in their kitchens, brought to a central location and then delivered, it soon changed it. It created 15 centralised hubs in Mumbai with cooking infrastructure in place, where its 21-odd chefs could come and prepare the food.

Image source: Holachef Facebook page

This significantly reduces its costs in terms of picking up food from kitchens of its chefs. But some chefs still prepare food in their own kitchens.

InnerChef too has a similar model where it run its own kitchens. “Food is prepared fresh and on-demand by our team of cooks and chefs, carefully packed and shipped to customers by our delivery riders,” the company spokesperson says. Unlike Holachef and TinMen, it focuses on modern Indian, Italian, Asian and European cuisines.

However, it also has a model where some categories such as desserts and biryanis are prepared by Home bakers, chefs or SME food entrepreneurs.

But Gagan Goyal, Partner at India Quotient says that the model of picking up from chefs, bringing it to a hub and then delivering is not a scalable model.

“A normal home chef can make only a limited amount of food. They can’t make food for more than say 50 people. To make food for so many, you need more help. Moreover, quality assurance becomes a challenge. While it may not be a challenge when you start off, as you operationally become bigger, this model is difficult to sustain,” he adds.

TinMen is experimenting with a model to reduce costs. Prabhat says if it works for them, it will soon be implemented.

The testimony to the fact that these startups are solving a real problem for corporate employees is the amount of orders these companies receive on a daily basis.

TinMen receives around 1000 orders a day across eight to nine locations in Hyderabad. Innerchef ships over 2000 meals across Gurgaon, Delhi, Noida, Bangalore, Mumbai and Hyderabad. According to a July 2016 VCCircle report, Holachef services over one lakh orders every month.

And while Holachef hopes to turn profitable this year, TinMen reached operational breakeven a few months ago. But as investments into the business for expansion continue, TinMen is confident of turning profitable in the next few months.

Investors too, seem to have a good appetite for these startups.

Holachef raised around Rs 40 crore so far in two rounds from investors like Kalaari Capital, India Quotient, SIDBI and Ratan Tata.

TinMen raised an undisclosed amount from Lead Angel Network in January 2016. In April this year, it raised another round from MAPE Advisory Group, Sify co-founder R Ramaraj and Corvus Ventures, which is led by Mahesh Reddy of MAPE Advisory and its earlier investor Lead Angels.

InnerChef raised around $1.6 million from a bunch of tech entrepreneurs including Phanindra Sama, Vijay Shekhar Sharma, Vishal Gondal and Anupam Mittal in 2015. More recently, it raised $2.5 million in a Series A funding round led by Mistletoe, M&S Fund Singapore and existing investors.

Image source: Innerchef Facebook page

Gagan says that food has a huge opportunity with disposable incomes rising, people getting busier people are needing assistance with food, especially to eat on a daily basis.

“It’s just that it is an operationally heavy business where they need to make and deliver the food. Startups need to make sure their unit economics are perfect. And they should ensure their cost levels are correct and are selling at an appropriate price,” he adds.

TinMen’s average ticket size is around Rs 90. Innerchef and Holachef have an average ticket size of around Rs 250-300.

Innerchef says that deliveries is the biggest challenge in any food delivery business. “Customers expect food to be delivered fast which needs massive investment. But customers are not willing to pay extra for delivery and cost has to be subsidized by companies,” the spokesperson says.

One thing that seems to be working for startups like TinMen and Holachef is that they chose to focus on growing in one city than trying to expand too wide too soon. Having being operational for over two to three years, Holachef only caters to Mumbai while TinMen caters to only a few areas in Hyderabad.

Rajeev says that startups tend to rush to other cities if they don’t think that their product is differentiated and someone else could replicate it and grab your market. 

“Companies should ensure that their brand value has people attached to it. You then have to make sure you have a very differentiated product and are solving a problem that is very complex to solve. If those three come together, you would have created a successful company, not just in the food space, but in any industry,” he adds.

And like Gagan says, with a scope so large, it’s not an industry where the winner takes it all.  Everyone will have a large play. The startup that ensures the best execution, the best product and efficient unit economics will stay the course.

This article has been produced with inputs from T-Hub as a part of a partner program.

Read: Will UberEATS be able to cook profits in India’s food tech financial black hole?

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