Online food delivery is increasingly becoming a heated space. Huge Investments are being poured into the online food delivery space, this year alone online food and grocery delivery startups have received investments of over 671 million dollars, with Zomato leading the charts with 200 million dollar investment. Swiggy also scored a high investment of 210 million dollars from Naspers.
The online food delivery sector in India has been growing by leaps and bounds. The sector witnessed a staggering growth rate in the number of daily orders, which has been growing consistently at 15% on a quarterly basis from January to September last year, according to RedSeer Consulting. With this increase in daily orders, logistics has turned out to be a big problem. Online food aggregators, like Zomato, Swiggy, and UberEats have more than doubled the salaries of their delivery boys and are also providing higher incentives “for deliveries during peak hours and heavy rains.” Swiggy and Zomato have also moved on to recruit many more delivery executives, as their delivery volume has increased.
Zomato currently receives over 7 million orders per month behind Swiggy’s 10 million orders. While UberEats and Ola owned Foodpanda receive just over 25,000 and 40,000 orders per day respectively. Due to this high surge in delivery orders, aggregators are forced to hire more delivery executives. According to the Economic Times, “Swiggy has over 55,000 delivery executives - up from about 30,000 in January, While Zomato’s fleet stands at over 50,000 from 1,800 in January.
Many experts worry that the online food delivery sector might just come to a tragic halt. As experts’ question whether the online food delivery sector has a sustainable business model. Online food delivery startups have a plethora of responsibilities and costs that may turn out to be extremely draconian in the long run. These costs include, paying an army of delivery executives, investing in uniforms, delivery bags and the high cost of acquiring customers which involves providing discounts and cashbacks.
Due to these reasons, for a new startup looking to enter the food space, delivery does not seem like something they would want to pursue. In the online food delivery sector many experts, investors, and entrepreneurs have their eye on cloud kitchen, which has also been growing in the Indian market.
Cloud kitchens, to put in very simple words are restaurants that only cater to online orders, this means you cannot dine nor can you take away orders. Cloud Kitchens are economically feasible simply because they have no front-end operations. Cloud kitchens offer a wide variety of benefits in comparison to online food delivery startups and restaurants.
Firstly, cloud kitchens lower the cost of maintaining real estate. Maintaining a restaurant consists of a wide variety of aspects, one of the most expensive aspects is location. For a restaurant to be profitable finding a good, and highly popular location is essential. And these properties cost a fortune. Cloud kitchens completely avoids this aspect as a cloud kitchen can operate from not-so-popular locations, and do not require large area.
Another advantage or reason for the surge in cloud kitchens is that while restaurant-owners also must invest in opulent furniture, cloud kitchens don’t have to. This makes it posssible to scale cloud kitchens to several locations quickly. Further, it is also possible to piggy back on the various delivery apps to get to the end customer.
Food Delivery Aggregators
According to a Bloomberg report, “more than 400 food delivery apps were operational in India between 2013 and 2016. The online food delivery industry grew by 150% year-on-year, with an estimated Gross Merchandise Value (GMV) of $300 Mn in 2016.”
As of this moment, online ordering and deliveries in many large cities total up to 50% of restaurants’ revenues and experts predict it is likely to go up to 70% over the next three years.
Food delivery aggregators have a very simple business model. Aggregators, particularly Swiggy, make money by charging a delivery fee, and by taking a commission from restaurants. Another way food aggregators make money is by providing delivery access to help restaurants such as cloud kitchens or other small restaurants. These restaurants and cloud kitchens are tagged “Exclusive” on the Swiggy app.
Food aggregators help restaurants and cloud kitchens receive more orders, they also make money through listing and promoting restaurants on their app or website. These restaurants are tagged as “Promoted”.
The main food delivery aggregator in India which takes the cake is Swiggy, though, Zomato also does falls under this categorization, Zomato does much more than delivery and only entered the delivery space just last year.
Restaurant search and discovery Startups
As mentioned earlier, Zomato was initially a restaurant search and discovery startup and only entered the delivery space last year.
In this particular category, Zomato is the only big player. Zomato has been growing at a steady pace and is now present in over 23 countries. Zomato has multiple sources of revenue, one of the primary sources of revenue is through advertisements by restaurants.
“Zomato’s advertising is very specific, when people search for specific keywords, ads of restaurants are shown for that specific keyword. This makes it highly targeted.” Zomato also provides consulting services. Zomato sits on a huge pile of data and information, which they offer to entrepreneurs who are interested in starting a restaurant. This information includes the success rate of opening a restaurant in a particular location, and it also provides information on the most popular type of food in the area, etc. Zomato also conducts exclusive events, they monetize in this space by selling tickets. They also provide table and reservation management services for restaurants. Plus they have an entire community of food bloggers who write in-depth reviews.
Zomato also started a paid subscription service in November known as Zomato gold which lets customers receive complimentary food and drinks while ordering from partner restaurants and bars. Zomato Gold service is only limited to dine-in orders and not deliveries.
Subscription Based Food Delivery
Part of the reason that Zomato has taken to exploring the subscription model is that it eliminates the unpredictability of cash flow. This makes it easier to predict inflows and therefore manage the business.
Most delivery businesses are not exempted from the vagaries of uncertainty.Almost all of the online food aggregators, who just deliver food have to deal with this.
One type of Food delivery service that has been relatively untapped is the subscription-based food delivery models. Although, there are a few coming up, especially with healthy food apps such as Curefit. The subscription-based food delivery model works by making the customers purchase a monthly or yearly subscription and get their food delivered for free for the length of the subscription.
Food For Thought
The subscription model works well if you regularly order food online. Curefit provides the subscription-based model, but apps like Curefit and Growfit offer the subscription model but only on one particular type of meal, and are laser-focused on just healthy diets. These apps lack variety, the subscription-based model would be significant if you apply it to a food delivery app like Swiggy.
Hypothetically speaking the app could charge 500 per month as a subscription for free delivery and customers can get their order delivered for free from any restaurant they choose and at any time, through the length of the subscription. This model provides benefits such as an efficient use of manpower and timely delivery of orders, plus it can save customers from paying extra for deliveries when the circumstances are difficult such as during the rain, busy hours and late at night.