Differentiation is key.

Will UberEATS be able to cook profits in Indias food tech financial black hole
Atom Food Tech Monday, May 15, 2017 - 14:30

At the Mehboob Studio complex in Bandra, a studio floor has been transformed into a fancy restaurant, with two long dinner tables lined up for guests. The lighting is dim, the décor chic. Waiters sporting ‘UberEATS’ aprons are manning the tables, as gourmet food is being served to the attendees. It’s a classy affair.

As journalists try to make sense of the bao-style vada pao and dabeli, a nerdy-looking, short man dressed in informal wear makes his way up to the dais. Kartik Murthy, the Product Manager of UberEATS responsible for its internationalization and growth, is cautiously optimistic as he explains a feature that could possibly set UberEATS apart, from the other food-delivery tech startups in India.

“For restaurants, we have developed a tool, the Restaurant manager, to share actionable data and analytics to help them grow their business,” he says, as he shows the audience a dashboard meant for restaurant-partners of UberEATS. Powered by data and insights, the tool will help restaurants gauge consumer behaviour, design menus, control order flow and improve their exposure. What Uber does with data in its cabs business, UberEATS will help restaurants do in the localised food business.

But can UberEATS, Uber’s on-demand food delivery app which connects restaurants and consumers through third-party delivery-men, be successful in the already-crowded and not-so-successful food tech space in India?

India’s food tech story – a saga of failures

India’s food tech story started in 2006 with the launch of Burrp, a restaurant discovery platform. Zomato joined the race two years later, and with aggressive marketing, became the go-to website and app for restaurant discovery.

Soon enough, businesses started moving from just discovery to delivery. 2014 saw a lot of action in the food-tech space, with delivery-partner companies like Swiggy, Dazo, Eatlo, RoadRunnr and Tiny Owl being founded.

But this was a time when India’s eating habits were yet to change. And the struggle to do just that meant these well-funded startups were burning millions on aggressive marketing campaigns – and that wasn’t sustainable.

The year 2015 saw a bloodbath. Dazo shut down operations due to lack of funding, so did Eatlo. Tiny Owl was laying off hundreds of employees. It eventually shut down operations in all but one city and then merged with RoadRunnr to form Runnr in 2016. FoodPanda was struggling too. Its co-founders in India had quit. There weren’t many players left. Swiggy managed to stay afloat, which helped it capture majority of the market share. Zomato too, switched to delivery in 2015.

Meanwhile, cloud kitchens like FreshMenu and HolaChef were also launched, and became popular with users. But 2016 saw little funding – even lesser than 2015. Ola Café, a similar concept from Uber’s main competitor in India, also failed.

Tech giant Google is also experimenting with this space. It launched Google Areo, which lets users order mails from restaurants nearby. It brought on board Freshmenu, Box8 and Faasos for food ordering.

Even the few survivors in this space lost a ton of money in FY16. Zomato posted a loss of Rs 492 crore in FY16, Foodpanda India’s loss ballooned four-fold to Rs 142.6 crore and Swiggy posted a whopping 65-fold jump in losses to Rs 137.18 crore from Rs 2.12 crore while posting revenues of Rs 23.59 crore in FY16. Freshmenu’s losses too, widened to Rs 33.8 crore in FY16 from Rs 2.31 crore the year before.

So, does it make sense for Uber to enter India’s food tech space now?

Changing food habits, booming business

One thing which UberEATS has going for itself, is that despite low investor sentiment in food tech, the industry is steadily growing, thanks to the changing food habits of the Indian consumer. According to a study by RedSeer Consulting, the food-tech space saw a growth of 150% in order volumes in 2016.

“People are increasingly moving to ordering food online. There is consumer demand for sure,” says Sreedhar Prasad, Partner - Internet business and Startups, KPMG.

Swiggy has 12,000 restaurants on board across eight cities, being catered to by 13,000 delivery boys. And on an average, it does anywhere between 90,000 to one lakh orders per day. Zomato, more of an incumbent in this space, has a supply of 18,000 restaurants and processed two million orders in the month of March. However, online ordering contributes just 20% to its revenues.

The numbers are only increasing, even if costs might not have entirely rationalized. But UberEATS will need more than just these numbers to win the market, say experts.

What the industry needs

“What a new player needs to keep in mind is how many restaurants they have on board and if they have enough delivery guys to manage the demand in a particular vicinity. And since it is a complex problem, the opportunity is always there,” says Sreedhar Prasad of KPMG.

However, Ashish Sanganeria, partner, Longhouse Consulting says that the delivery business has one major issue – the control of consumer experience is not in the hands of UberEATS or Swiggy. When users order food, the product is the food, not the delivery. While the delivery experience also matters, the food experience overshadows it, and delivery businesses have no control over that.

So, for UberEATS to capture this market, it not only needs to match numbers of its competitors, but also significantly differentiate themselves from others, especially in terms of customer experience and engagement.

“The biggest question is what the differentiator will be. Swiggy has a trust factor. You can even track the delivery boy as he comes to you. Zomato has a significant classifieds business. So, if you’re a new player, why should I move away from Swiggy?” Prasad asks.

Enhancing the experience of the customer and restaurant-partners could be the major differentiators. This not only helps other customers decide what to order, but also helps restaurants understand consumer needs and effectively improve food quality.

For example, there is a list of suggestions with a slew of restaurants that pops up when a user opens the app. Uber, like its cab-hailing service, is also significantly employing machine learning to customize restaurants and dishes for each user based on past orders. This will go a long way in keeping consumers on board with the right food for them.

Similarly, UberEATS provides restaurants also with an app that helps them manage order flow, menus and increase exposure. More importantly, UberEATS has rolled out a new analytics tool that gives restaurants access to data about their service quality, consumer satisfaction and sales.

Even so, there are skeptics.

Skepticism and hope

Ashish Sanganeria says that the delivery business is not as lucrative as the newer cloud-kitchen model -  like FreshMenu. “Delivery is an operationally heavy business and making money out of this is a little difficult. For a model like that of UberEATS and Swiggy, there is no control over experience because the food or the restaurant is not theirs. So here UberEATS success will depend on variables like on-time delivery, which I feel is difficult in a country like India,” he adds.

Sreedhar Prasad says that not just newcomers, but incumbents too need to use simple customer data like who orders what and when and accordingly push notifications so that a typical office-goer, for example, picks these services over the cafeteria.

Swiggy, UberEATS main competitor in India, is unfazed.

It is not worried about global players entering the space it has been enjoying majority in. Srivats TS, VP marketing at Swiggy, says that more players will mean opportunities and innovation that will benefit the entire ecosystem. “Our advantage lies in the deep understanding of Indian food preferences, customers, restaurants and logistics. Today, consumers trust Swiggy not just for its lightning fast and reliable service, but also because of benefits like choicest restaurant options, no restriction on minimum order, multiple payment options, continuous customer support among other things,” he says.

Swiggy believes that assortment, convenience and price helps customers stick. Srivats claims that it reduces the high overheads of restaurants by maintaining a large delivery service, providing analytics support to assist in retaining consumers and peak-time resource allocation, which brings them additional business and a higher bottom-line.

But will it bring higher bottom-lines for the delivery service aggregators? The experience so far has not been very encouraging.

With inputs from Ramnathan S

Become a TNM Member for just Rs 999!
You can also support us with a one-time payment.