Startups

Online food ordering sites mushrooming; Is the market ripe enough?

17 Sep, 2012

Working late in office? Left without provisions at home? Can't dine out because of foul weather or because you don't know the local joints? These are all the reasons why US-based GrubHub came into existence as early as 2004 and is still doing a roaring business. And these may be reason enough for a few Indian startups to make foray into this niche space – listing neighbourhood restaurants and allowing prospective diners to order through their websites.

Started in April 2012, Rocket Internet-funded FoodPanda is in a similar space. It features location-specific listing of restaurants on its site where you can check out menus (along with special offers) and place order. One can also search restaurants cuisine-wise or by other parameters such as vegetarian, healthy food and so on. According to FoodPanda, convenience and choice of food are the only value proposition it offers.

Akhilesh Bali, co-founder of FoodPanda said, "We have noticed some typical traits when it comes to online food ordering. We see good spike on weekends and repeat orders from people who have opted for the service once. Compared to other countries (besides India, FoodPanda also caters to Singapore, Thailand, Malaysia, Indonesia, Vietnam, Taiwan and Colombia), the Indian market is still at a very nascent stage. But as far as Gurgaon is concerned, it can be easily compared to our market response in Singapore," he added.

Globally, the model has worked, though. As mentioned earlier, US-based GrubHub started its business in 2004 and it is now a key player there, along with another oldie SeamlessWeb, which was launched back in 1999 and has traditionally focused on corporate catering. Another recent player in the US market is ChowNow, which is betting more on social media and leveraging Facebook for order placing. Moreover, innovative play is taking place globally where these companies are betting big on mobile apps and social marketing.

In tune with the global trend, this niche Indian market has also witnessed some interesting activity. For instance, UK-based JustEat, a global major, has entered the country by buying a majority stake in Bangalore-based HungryZone.com. HungryZone was set up back in 2006 and it was probably the first Indian firm entering this space. Currently, the company is clocking double-digit growth month on month and catering to three key metros – Bangalore, Mumbai and Delhi-NCR.

"The market has completely changed since we started," said Ritesh Dwivedy, co-founder and CEO of JustEat India. "At that time, e-commerce did not really exist per se. And even now, the India market is definitely a few years behind the developed countries. In London, JustEat does about a million orders a month and in smaller countries like Switzerland, it is about to break even. Compare this with our best data, from Bangalore, which orders in four digits a day. The market has to catch up but it is getting there," he added.

Dwivedy also shared with us that at JustEat, service level agreements are signed with restaurant owners and those include clauses like delivery time and customer friendliness to make sure that all their merchants have certain uniformity in service. JustEat has signed up more than 2,500 restaurants and has an online payment system in place. In contrast, FoodPanda is yet to activate e-payment tools on its India site.

Another player that we have caught up with is Mumbai-based Deliverychef. Started by Ankita Tandon and Aditi Talreja in 2010, it currently operates in just two cities – Mumbai and Pune. Deliverychef is bullish on corporate catering and has tied up with various organisations in these cities. . The companies who have tied up with Deliverychef make it mandatory for employees to order via the Deliverychef site when they are staying late and ordering food.

"We only sign up restaurants that accept online payment although our customers can pay both online and offline," said Aditi Talreja, co-founder and director of Deliverychef. And the USP of the business? She again stressed on the convenience factor.

Some other players in the market are Delhi-based Foodera.com and BigBite.com, and Pune-based Tastykhana.com.

The revenue channel common to all players is the commission charged on every order. In addition, restaurants are also charged a listing fee by some of the players. But in order to scale up the business, there have to be more revenue channels like their global counterparts –mobile apps for ordering, social media marketing and the likes.

Interestingly, online restaurant discovery site Zomato has all of these features – a database, a web platform, brand recognition and also the technology. So why doesn't it enter online ordering as well?

"Currently, this space doesn't have volumes. We have some common clients (restaurants) who tell us that they only get 4-5 orders a month from those online food ordering sites," said Deepinder Goyal, co-founder and CEO of Zomato. "Of course, we won't say it's a complete no-no for us. But it doesn't make sense to venture into this space right now. We may look at it in the future," he added.

Can they deliver?

The promoters of these businesses might sound optimistic as there is another aspect to this business. Most of these sites list local joints or those offering special cuisines – eateries that may be local celebrities but without an online presence. In such cases, it's good business for both. For example, a Noida-based restaurant called Salt and Pepper, a popular little joint in the area where it operates, neither has a portal nor has the expertise to leverage the internet or the social media. So when JustEat approached the eatery to list it on its site, Salt and Pepper readily agreed as it would be incremental business at no extra cost. Although orders from JustEat are all too few right now, there is no listing charge or additional costs and the restaurant would continue to be a part of JustEat, the owner told Techcircle.in.

A McDonald's or a Pizza Hut would not be eager to grab customers via third party sources because they already have more-than-adequate online following and standalone e-business models. But for small or upcoming eateries, such sites would definitely mean an additional channel for revenue generation.

Investors, however, want to wait and watch for now. The current business model faces a lot of challenge and the biggest one, according to well-known angel investor Vijay Shekhar Sharma of One97 Communications, would be to make customers understand that the portal is just a service aggregator and not actually responsible for food delivery.

"In a business like this, consumer delight depends on many other factors. Can you make it clear to your customers that you are essentially a dispatcher? How does one make sure that the food will arrive on time and as per SLAs? These are some of the crucial questions that will also decide the scalability of these businesses," he added.

Rahul Khanna of Canaan Partners echoed similar concerns. "The model has been there for some time in other countries but in India, it is still in its early days. Online food ordering is an interesting urban phenomenon, but we are yet to see how the business model proves itself," he said.

Whether Indian consumers are ready to order food online in a big way is yet to be seen.

(Edited by Sanghamitra Mandal)

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