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-
- 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).
- 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:
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:
- Am I able to serve food in other parts of the day - breakfast, morning/ pre lunch snacks, evening snacks etc.?
- Can I get corporate/ B2B bulk deals?
- 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
- Non - standardization of recipes
- Lack of detailed SOPS. And if there are, then poor adherence to them.
- No menu sampling of food amongst the kitchen staff prior to introduction
- Non-availability of key ingredients due to improper planning
This is contrary to how a food business
should be run.
- Recruitment
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
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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