Thursday, October 15, 2015

Food Gone Good - Food (Delivery) will Work

The 'hot' business till a year ago is seemingly ' hot to handle' now. There is a pervading sense of fear exacerbated by the closure some famous start ups in food delivery business. However, the naysayers will not question the potential in food delivery-

  1. The organised food business in India is worth $48 billion, or Rs 3 lakh crore, of which food delivery is valued at $15 billion (Rs 94,755 crore).
  2. In developed nations, takeaway and home delivery contributes to about 35% of the food business. In India only about 10% of the orders are for takeaway and home delivery. Furthermore, 80% of the orders are made through phone calls.  Eateries like Dominos, Pizza Hut etc. alone get 50-60% of their sales through eCommerce.

 At last count there were around 120 start ups in this space, all jostling for the same customer in the same areas.  Given the low entry barriers and healthy wallets of investors start ups have mushroomed. That is reason enough to have these all players playing with their back to the wall.

Having said that, there ‘seems’ to be some insurmountable flaws that are causing such businesses to fail. On closer scrutiny here are some flaws, which I have identified:

  • Definition of the Business

The very nomenclature of the business by the various brands is perhaps the biggest stumbling block. Most businesses today have a kitchen (made to their requirements) that prepares food. And by that investment it is not merely a delivery business but a food & logistics business (pretty much like a airline catering business). The task is then to sweat the real estate and not look at just delivery since obviously the size of the delivery market is not large enough.  
Some points which these start ups need to ponder are:
  1. Am I able to serve food in other parts of the day - breakfast, morning/ pre lunch snacks, evening snacks etc.? 
  2. Can I get corporate/ B2B bulk deals?
  3. Can I serve this food to canteens or other restaurants?
These are not a comprehensive list of questions but some pointers, which indicate that these businesses are not in just food delivery alone but food as a whole.
This model has been proven by QSRs largely which have been in this business for many many years. This is perhaps a key learning for new food delivery brands that tend to narrow their focus on delivery alone.  The QSRs have dine in and delivery which caters to the customer either in our outside of their outlet.

  • The Logistics Angle
I have sampled food from various food delivery companies and there is a blatant misuse of delivery boys. More often than not (and in peak time) one delivery boy will travel 4 kms just to deliver one order. This shows that there is very little effort put into managing deliveries. If the same delivery boy were to deliver just one more order then the costs of delivery alone would come down by half. This is not to say that there cannot be single deliveries but proper route mapping and planning needs to be done.
A related example can be when a high loader from an airline catering company depending on the time and load may actually service between 1 and 4 air crafts thereby optimising costs and efficiencies.
An alternative would be to outsource deliveries to specialized delivery companies - no costs of manpower and only incremental costs.  I would personally recommend a mix of both.
Sceptics may mention that the location can be anywhere within a 5 km radius. Look at airline catering companies, they have to reach the food within the same distance too. And yes! An hour after preparation is a long time to deliver. Food needs to go hot and reach the customer hot!

  • Food Quality
I have heard that one of the biggest problems of the food delivery brands has been consistency of food quality. I have heard employees tell me that it is really difficult to maintain consistency. Frankly this is a feeble excuse for the lack of systems and processes. 
Some of the biggest issues which these start ups are not doing are
  1. Non - standardization of recipes
  2. Lack of detailed SOPS. And if there are, then poor adherence to them. 
  3. No menu sampling of food amongst the kitchen staff prior to introduction
  4. Non-availability of key ingredients due to improper planning
This is contrary to how a food business should be run.

  • Recruitment
Such a cliche but alas it is true. Getting the right people for this business is absolutely necessary.  I happened to see some recruitment listing that looked for professionals from premier schools to manage their kitchens. While the role is interesting, I do sense fatigue setting in very soon. There is nothing glamorous about this job infact a lot of dirty work. (Been there!).


The Larger Opportunity
  • Surplus capacities of existing eateries.
Unfortunately most food delivery companies are competing with existing restaurants/ eateries. The biggest advantage has been low entry barriers, which in turn has also been the biggest disadvantage. They are creating a business that rivals the existing businesses.  There are huge surplus capacities in most popular cuisines namely Indian, Chinese and Continental. To top this, walk ins are reducing over week day lunches and to a smaller extent for dinner.

  • Opportunities
1. Marketplace
There are large players already like Swiggy and Tiny Owl that serve this segment wherein the players list eateries and then facilitate the ordering and delivery.

2. Curated  Standardized Marketplace
The market place model has some demerits, the quality from many restaurants have been questionable.  In this model, the standards like recipes, hygiene, menu, packaging etc. are decided by the aggregator, who in turn will facilitate the ordering and delivery. There is perhaps only one company with this model - Cookaroo

While I am a strong believer in both these models,  I am inclined to explore more of the second model. Here the aggregator will have a lot more control without capital investments and lesser manpower costs.


Parting Shot

Lack of understanding, lack of processes and a myopic view can never be answers for writing off a business. Coupled with this is the same model being followed by multiple players especially since the entry barriers are low. There will be shakeout and consolidation. And it has already started! But don't write the business off.

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