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Food delivery sector on cusp of revival as investments pour in

Livemint:  February 26, 2018

Bengaluru: The food delivery sector, written off not too long ago, has seen a revival over the past six months. While market leaders Zomato and Swiggy have raised large funding rounds, cab-hailing firms Uber and Ola, attracted by the runaway expansion of Swiggy, are investing hundreds of crores of rupees to gain a slice of the market.

The food-technology sector is expected to touch at least $2.5 billion by 2021 from its current size of about $700 million, according to a report by consultancy firm RedSeer Management. The online food delivery market is growing at a steady 15% quarter-on-quarter in terms of daily food orders.

Bengaluru-based Swiggy leads the stack with a 35-38% market share, followed by Zomato at 25-30%, according to RedSeer. UberEats, the food delivery business of cab major Uber Inc., which was already operational in several countries, entered the segment in India last year.

Uber’s local rival Ola, which had shut its food delivery business of Ola Cafe in 2016, re-entered the space by acquiring FoodPanda’s India operations in December, and said it would invest $200 million to expand the business.

“The industry is moving more and more towards self-delivery, resulting in the fall of delivery time. Players that have higher control over the delivery process are able to provide much better value,” said Vaibhav Arora, associate general manger, RedSeer Consulting.

“We see this come out very strong in the monsoon quarter (July-September). Players which had control over the delivery process were able to charge additional fees from consumers for fulfilling deliveries. And the consumer willingly paid additional fees,” he added.

The revival in the food delivery sector comes two years after TinyOwl, which was considered one of the most promising hyperlocal start-ups, cut jobs and shut operations in many cities. TinyOwl later merged with logistics company RoadRunnr in a distress deal.

Along with TinyOwl, several other food delivery companies struggled as investors declined to fund them further. Some such as Dazo and Spoonjoy shut down.

But Swiggy has thrived. The company, which has raised more than $200 million in capital since starting out in 2014, announced its latest funding round of $100 million, led by Naspers this month.

Because of the speed and consistency of its logistics network, an easy-to-use app and a large network of restaurants, Swiggy quickly became the largest food delivery app.

Lured by Swiggy’s early success and the fat margins in food delivery, rival Zomato was forced to launch and then expand its delivery business. Uber and Ola have now joined the race, making food delivery one of the most competitive areas in the consumer internet sector. The RedSeer report also said the top cities for food tech firms include Bengaluru, Delhi, Mumbai, Pune, Kolkata and Hyderabad. Chennai recently joined the list of top cities. The 7 cities together contribute to 87% of the overall market.

Food delivery companies are taking control over their delivery fleets, with more than half of all orders fulfilled by self-owned delivery fleets, RedSeer said.

The percentage of daily orders fulfilled by self-owned fleets increased from 46% in Q4 2016 to 56% in Q3 2017, while the average delivery time of the industry improved from 47 minutes to 42 minutes during the same period, the report said.

Apart from a greater control over delivery fleets, food tech start-ups are also introducing new initiatives for restaurants. In November 2017, Swiggy had launched Swiggy Access, a programme which allows its restaurant partners to set up kitchen spaces in neighbourhoods where they don’t currently operate. Zomato is also working on a similar model for its partner restaurants.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.