The Indian Food Delivery E-Retail sized at USD 1287.1 million has enough headspace for Future Growth

Food delivery e-retail has come from strength to strength in India. Increasingly Indian households are now using various apps to browse through a list of restaurants (and cuisines) to order the food of their choice and get it delivered to their doorsteps. The growth in the industry has been backed by the increase in the migrant millennial workforce in the cities, higher participation of women in the workforce, and the overall rise in disposable income and internet penetration.  

Like other e-commerce businesses, the pandemic has also helped the food delivery businesses in India. As dining-out was not possible, ordering food through App was the only possible choice for many. The norms of social distancing that continued further after the lockdown suspension, have also given impetus to food delivery businesses. 

Though most of the regular retail and F&B operations have resumed in the country, the food delivery apps continue to gain popularity, as they offer a convenient option to order food online. 

As per the market research by The India Watch, the aggregate revenue by top players amounted to USD 1287.1 million in FY 22. The market has grown at a CAGR of 44.27% between FY 19-22. The total GMV amounted to USD 5598.4 million in FY 22, jumping significantly from USD 1866.9 million in FY 19. 

The market is duopolistic in nature with Swiggy and Zomato controlling 92.1% of the market share. This is a further shift from FY 19 when both major players contributed to 81.4% of the total market. 

However, believing that the market will continue to act in a similar fashion with limited scope for other players to thrive might be far from reality. There is ample space for other players to enter, thrive, and evolve. The overall food delivery market in India is just the tip of the iceberg, and there is enough headspace to grow both horizontally and vertically. Already many players through innovative ideas are expanding their foothold in the industry. 


 Key Insights on Food Delivery E-Retail  

  • The nature of Food delivery business in India is duopolistic yet diversified. Zomato and Swiggy are the two prominent platforms, which now offer full stack delivery after initially testing the waters as aggregator platforms. 
  • Initially, Swiggy and Zomato (along with host of other platforms, some of which are defunct by now) offered aggregator platform for restaurants and F&B outlets, resulting into digital demand creation. However, the asset light approach had supply side constraints such as fluctuations in food quality, packaging issues, poor food economics. Similarly, since the last mile delivery was in hands of restaurants, these aggregators could not wield much control over delivery times, hygiene, delivery boy time tracking, etc, resulting many times into unsatisfied customers.
  • Subsequently, these players cohesively integrated backward and forward to offer full-stack delivery. They tied up with restaurants, and started giving discount offers alongside developing cloud kitchen facilities. Technology-enabled rating systems were introduced for increased transparency. Similarly, through network of riders, they took control of last-mile delivery thereby managing delivery times, product hygiene, etc. effectively. 
  • Besides full stack players such as Zomato & Swiggy, the food delivery industry in India is also fraught with cloud kitchen platforms. Fresh Menu is a viable brand in fresh food items. Eat Fit, part of the fitness chain Cure Fit is an emergent player in the fitness and lifestyle diet segment. Rebel Foods (Earlier Fasos) is a popular food brand in numerous segments. Other brands like Box B and Bin Chef are also key players in the segment. 
  • Industry players are also diversifying into other ancillary industries. Swiggy in 2019, started bundling its food delivery with grocery services under the flagship of Swiggy Stores. It has recently launched, Swiggy Instamart, a hyper localized grocery delivery service that operates with the help of a network of dark stores.  Zomato also started hyper localized grocery services during pandemic but has eventually scaled down. 
  • Discounts and cashback apps such as Magic Pin, Nearby, etc. are also venturing in the food tech space. Already big food chains like Dominoes, McDonalds, BBQ Nations have tied with Magic pin. Buyers can earn cash back and discounts on food orders, by earning Magic Points.  

 

Key Investments, M&A, and Tie-Ups

 

  1. In 2021, Zomato has closed a fund raiser of around USD ~ 500 million. Around half was direct cash infusion and the remaining comprised secondary stock sales by some Chinese investors. The company was valued at around ~USD 5.4 billion in mid-21, climbing from USD ~ 3.9 billion in Dec, 2020. In July 2021, it launched its IPO. (However, the IPO has performed poorly so far.)

  2. In April 2020, Zomato has acquired Uber Eats, following an investment of ~ USD 330 million. This has helped Zomato to become the largest player in the food delivery segment, surpassing Swiggy.

  3. In April 2021, Zomato’s rival Swiggy’s valuation reached USD ~ 5 billion, following an investment of USD 800 million by a host of investors.

  4. Rebel Food, which owns a host of cloud kitchen brands such as Behrouz Biryani, Faasos, Oven Story, Mandarin Oak, Kettle & Egg etc, has received a funding of USD 50 million from US-based hedge fund Coatue. This has helped Rebel food reach a valuation of over USD 800 million, inching close to becoming the 3rd member of the USD billion club after Zomato and Swiggy. 

  5. Amazon has also ventured into the food delivery space in 2021. However, currently, the company is pilot studying the market in Bangalore and is yet to take any concrete decision about future expansion. 

 The Way Forward 

India’s online food delivery platforms will continue on an upward growth trajectory, stemmed by general uptrend in overall online consumption, increased population of migrant working millennial bachelors & students and working couples. Besides higher demand, the supply dynamics will also favor the business.

Although COVID-19 has been a setback for the business, it has also introduced remarkable behavioural changes amongst millions of households in India. This is going to help numerous online retail categories including food delivery. 

The overall space will be competitive and cash intensive. Hassle-free ordering, attractive UI/ UX, discount offers, and cohesive forward and backward integration will be essential to winning in the competitive landscape. Besides platforms need to focus also on basic parameters such as quality of food, taste, packaging, hygiene, and timely delivery. Besides, food ordering platforms, cloud kitchens will also gain prominence. 

The leadership position held by Zomato and Swiggy might be challenged in the future if Amazon decides to scale up in the business. Amazon with access to robust consumer data and an extensive on-ground workforce, can shift the rules of the game.  

There will be space for other smaller players to enter and scale-up, especially at the local level. In individual cities such as Bangalore, Mumbai Metropolitan Region, etc. new players are coming up to meet local/ city level demand. The market will also expand into smaller towns, which is a positive sign. Currently, ~ 70% of the market is run by top-8 Indian cities. However, the concept of food delivery is picking very fast in smaller towns marked by more than 200% growth in the past 12 months. In the foreseeable future, Tier 2 cities will also drive growth. Besides national-level players, this will unlock opportunities for local entities.

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