#Asia Once VCs’ favourite dish, has Indian foodtech bitten off more than it can chew?

//

Zomato and TinyOwl recently laid off almost 300 employees each, earning a lot of brickbats and sending worry waves across the industry

food question

Once the favourite dish on the menu for investors, has Indian foodtech bitten off more than it could chew?

The question now resounds even louder with established companies like Zomato and newer firms like TinyOwl having to resort to layoffs to streamline operations.

Many startups in the space are now facing financial pressure which has led them to cut costs, modify business plans, halt expansion or reduce their staff count. Some have even had to shut shop.

A sense of caution has dawned on the investors and the industry that is still trying to find its feet and lucrative revenue streams.

According to estimates, the tech-based food services market in India is valued at over US$14 billion. There are around 20 digital food-ordering ventures in India, some of whom are just providing an online platform for ordering, while others have set up their own kitchens, in addition to providing a booking platform.

Also Read: Indian food ordering startups bring home the bacon and more!

“There was never a steady flow of funds beyond seed round. Investors took big bets on this space early on because of the potential this space holds,” says Kumar Setu, Co-founder of Petoo, a quick-service restaurant that can track customers’ food habits and order volumes in a given location.

According to Technopak, the dine-out market presents a large opportunity for entrepreneurs as it is expected to reach US$78 billion by 2018 in India.

Too many cooks?

Things are moving very fast in this space with new business models coming up every day. Some sell healthy snacks while some others oil-free food, international cuisine, Indian cuisine and daily meals. Companies open up and shut down every other day and now startups face a challenge to raise the next round of capital after getting first round of funding with ease.

And it’s bound to remain this way because foodtech is a very complex vertical unlike e-commerce or transportation, according to Setu.

“You can do so many things so differently in this space — for [example], you can have your own kitchen or you can list others, you can sell Indian cuisines or hundreds of other possible cuisine options, You can do delivery on your own or give it to third-party firms, you can make it a daily meal platform or premium food platform. The possible combinations are endless and that makes it tough to crack,” he says.

Also Read: In photos: Snapdeal’s snazzy new Gurgaon campus

“And that’s why we see new companies emerging every other day with one possible combination.”

The good thing is that companies with bad unit economics or product-market fit are failing fast.

It looks like commotion for now, but it’s actually good for the ecosystem leaving the fittest to survive till last and become the leaders, Setu notes.

“I think there is an element of too fast, too soon. But there is also a self-correcting mechanism in the market and the sourcing of funds,” says renowned food writer and journalist Vir Sanghvi, who recently co-founded restaurant table reservation company EazyDiner.

“The layoffs tell us two things. The first is that the glamour attached to the food delivery space is now wearing off. And the second is that you can’t grow only for the sake of growth. There must be a sound economic model behind your expansion,” adds Sanghvi.

Most industry participants believe that after the initial seed funding, which created the hoopla around the industry in the first place, subsequent funding trickles down only to a chosen few with solid business models.

Also Read: Will new regulations affect fintech startups in Hong Kong?

While the recent layoffs come as a jolt, the optimism in the foodtech industry still remains.

“This was inevitable. All businesses have cycles. In innovative models that are yet to be proven there will be failures. That’s the crux of innovation; your learn by trying. No share in failing. Lesson is to fail fast and fail cheap,” says Deepak Shahdadpuri, Founder and Managing Director of DSG Consumer Partners, an investor in EazyDiner.

Ankit Mehrotra, Co-founder and CEO, Dineout, echoes Shahdadpuri thoughts: “If the business fundamentals are strong and your partners (customers as well as merchants) see and realise value in your offering, your business will grow,” he says.

According to K Ganesh, a serial entrepreneurs and investor in grocery delivery startups Deliver and Big Basket, for all the gloom and doom noise that is being raised, the actual layoffs — while very tough on the individuals involved — is a minuscule portion of the new jobs this sector or the startup ecosystem has created.

Also Read: Are Indian startups headed for a bubble burst?

“We think of food at least three times a day and everyone from pauper to prince needs to eat,” he says.

“While there is stress in the handful of companies that have followed the above strategy after raising obscene amounts of money, the rest of the sectors — most of the companies which neither had the luxury of huge capital or the desire to scale at all costs — are actually in a better place now that sanity is prevailing in the sector,” Ganesh adds.

Consolidation coming?

With the lack of game changers, new startups are treading on similar lines as the more established players keep emerging. However, with tight margins and flawed business models force many foodtech startups to fold up.

Explaining the economics, Ganesh says: “The unit economics is terrible. For instance, if the order value is INR 200 (US$3), the delivery costs are INR 60 (US$1), the margins are 10 per cent, you will lose INR 40 (US$0.60) per order. Then add to that cost of acquiring a customer, you will lose a lot more. More the orders, more is the loss. So it just does not make sense.”

So, is the Indian food tech industry mature enough for consolidation?

“The industry is still very nascent for any consolidation to happen. The only transactions have been acqui-hire at zero or distress valuations of companies that have run out of cash. Real consolidation will happen after lot more scale comes into the companies. I do expect that to happen, which is positive for everyone but will take another three-five years,” says Ganesh.

Setu cannot agree more: “There is no consolidation in foodtech space. foodpanda buying Justeat is not foodtech story – it’s a tech story. Spoonjoy‘s. acquisition by Grofers is not consolidation that’s acqui-hiring. Foodtech is nowhere close to maturity — there is so much that needs to be done and startups have just scratched the surface yet. Next one year will see massive transformations in the foodtech industry and that’s when consolidation might start to happen,” he concludes.

With inputs from Sainul Abudheen K

Image Credit: Shutterstock

The post Once VCs’ favourite dish, has Indian foodtech bitten off more than it can chew? appeared first on e27.

from e27 http://ift.tt/1lDV4Qs

Ce contenu a été publié dans #Asia par Startup365. Mettez-le en favori avec son permalien.

A propos Startup365

Chaque jour nous vous présenterons une nouvelle Startup française ! Notre pays regorge de talents et d'entrepreneurs brillants ! Alors partons à la découverte des meilleures startup françaises ! Certaines d'entre elles sont dans une étape essentielle dans la vie d'une startup : la recherche de financement, notamment par le financement participatif (ou crowdfunding en anglais). Alors participez à cette grande aventure en leur faisant une petite donation ! Les startups françaises ont besoin de vous !