India Food Delivery Startups: The Bubble Burst Saga

With the constantly changing lifestyle of individuals, there has been an upsurge in the demand for food delivery startups. From groceries to freshly cooked meals, these startups cater to every single need of individuals. According to the market reports received even a few months back, these food-technology startups happened to be the hot favorites of potential investors.

Reasons for the Downfall

Although they attracted huge amounts of funding, they spent those amounts on advertising and marketing, in an effort to grab the majority of market share. Perhaps, that is what resulted in doomsday for them. Look around and you will get a hang of the reality. Today, numerous food-delivery startups are shutting down at a rapid pace.

Failure to meet investor demands and a colossal financial pressure are some of the crucial reasons for their downfall. As the most unfortunate consequence, most of these food delivery startups are either closing down or reducing their employees.

The Statistical Lowdown

With this brief overview of the debacle, let has had a quick look at the food delivery business model. Going by the reports published by India Brand Equity Foundation, the online food ordering and delivery ventures account for about Rs 5,000 to 6,000 crore. And the revenues grow by a whopping 30% per month. The various personnel, as well as business platforms involved in this process, are food-ordering platforms, aggregators, delivery-exclusive payers, cloud kitchens and proprietary meal makers.

Understanding the Business Models

While classifying startups under the food delivery business model, you will come across three major segments.

The first group consists of startups such as TinyOwl, which happens to be a virtual marketplace acting as trading points for restaurants. The next set comprises of hyper-local delivery services such as Swiggy and Foodpanda, which takes care of both logistics and traffic.

The third group in this list includes full-fledged food businesses like Brekkle and Food Vista.

The Stark Reality

Each of these segments has their fair share of hassles. In the case of virtual food marketplaces such as TinyOwl, the average transaction size happens to be quite small. Quite inevitably, the commission received on orders is extremely less. These startups fail to gather revenues and in some cases, even the cost of customer acquisition is not met.

On the other end, the average commission percentages for hyper-local food delivery enterprises range from a mere 5% to 15%, depending upon the location of the order. Additionally, the absence of uniform ordering patterns further results in low productivity and revenues.

‘We are closed’

As the cumulative effect of all these factors, the past 6 to 12 months have witnessed a major downfall in the food delivery businesses. The startup bubble in this nation began to burst with Langhar, a Delhi-based food delivery service closing down during February.

OrderSnack, a promising Chennai startup joined this league by shutting down even before raising capital investments. SpoonJoy and Dazo, both with their origin in Bangalore shut down recently, during the last quarter of 2015. With such frequent call-offs by promising debutantes in the food delivery business, the entire ecosystem is going through tough times. Entrepreneurs need to think big and prepare to grab the market as service creators and not providers. Let’s hope that happens before the startup bubble in India completely explodes!