Online Food Service in India: An Analysis

E-commerce in India is expected to grow from US $2.9 billion in 2013 to a mammoth US $100 billion by 2020, making it the fastest growing e-commerce market in the world! E-commerce is also witnessing a spurt in online food & restaurant service companies, which is expected to reach $2.7 billion by 2019. This white paper explores drivers of the growth of such online food delivery companies in India, the current competition and how this affects the brick-and-mortar restaurant business in India. Here’s a look at the supply and demand drivers for online quick food services.

Demand Drivers

Encouraging Demographics

With a population of over 1.2billion, India is undeniably one of the biggest consumer markets in the world today. Moreover, 50% of this population fall under the age of 25, and the rest before the age of 35 years; making India among the youngest population in the world too. Most of the fast food demand comes from age group 18-40 years. What’s more, by the year 2025 the Indian middle-class demographic is expected to touch 550 million. Young India’s appetite is one of the key drivers for demand in the food and beverage industry on the whole.

Promising Income and Consumption Levels

With an increasing number of young Indians being productively employed in lucrative industries, sectors like IT services have upped the living standards and made their wallets fatter too. The World Bank reports a staggering 50% increase in per capita income since 2006 until now. Urban India sees a visible change in the social setting, which further fuels the advance of fast food restaurants in India. Higher disposable income is also a key driver for other subcategories of food products too.

Favourable Lifestyle Changes

With dual-income families, now urban India sees both parents bring home the bacon, thus changing the way people live drastically; with changes in routines, lifestyle and food habits. The demand for quick access to food and one with affordable rates is on the rise. Time crunches and an increasing need to spend quality time with 92% nuclear families reaching out for fast food or takeouts to save time and energy that would otherwise go into cooking up a meal at home every day of the week.

Rising Number of Working Women

Keeping in line with the above point, there has been an astounding increase in working women. Working women end up spending most of their productive hours commuting and at work, therefore there is very less time to cook full blown meals at home, all by themselves. Working women typically spend a large amount of their disposable income on buying takeouts or eating out. This is again a key demand-driver for the food and beverage industry in India.

Supply Drivers

Expanding Variety of Cuisines

With more and more restaurants offering global cuisines, this has had a significant impact on the overall food industry. Chicken biryani, burgers, butter chicken, pizza and Hakka noodles are customers' most preferred orders. North Indian fare tops, but Chinese, Italian, south Indian and 'healthy food' are also popular. The more Indians living in urban areas are willing to experiment with new cuisines, the more will frequency of dining out increase.

Upgrading of Retail Formats

With a slew of international food brands and restaurants making themselves available at popular malls, these seem to be the ideal space to get more customers who go to malls to shop. And inversely, more customers going to food courts and restaurants at malls, shop! It is a win-win situation for all parties, indeed.

Rising of Contract Cultivation

Contract cultivation is essentially a binding agreement that guarantees farmers’ purchases from giant global companies, provided they agree and supply the preferred crops to the companies. For example, McDonald's currently has over 400 farmers cultivating potatoes for them in over 2000 acres of farmland in the state of Gujarat.

Emerging of Logistics Providers

It’s not just true for the emerging e-commerce industry where couriers and delivery-handling companies are on the rise. There are logistic providers for the food industry too, such as Radhakrishna Foodland who is a local partner, providing their logistics services to global giants in India such as McDonald's AND Pizza Hut.

Growing of Delivery - dedicated Formats

The initial investment needed for a delivery-focused format is much lower compared to starting up a restaurant or even a fast food joint. Investments includes rent, designing interiors, furniture and so on. Due to such cost benefits, more operators are ready to devote their time, energy and investments in the formats dedicated to delivering food at the doorstep. There is a considerable decrease in the costs of labour, supplies and the biggest cost saving aspect is the need for quality real estate. This is the most expensive of all investments in restaurants, and with a delivery format this cost is saved.

Extension to Delivery Services in Existing Restaurants

Restaurants are now trying to maximize their business output by offering food delivery services. This way they all are able to rationalize existing fixed costs and also keep their business sustainable. Home Delivery is a very vital ingredient in this mix. It’s no wonder restaurants big and small, all are vying to get a piece of this pie! Moreover with this format, a higher number of customers can be serviced, compared to the sit-and-dine format where at peak hours, customers will be missed. The delivery format keeps customer loyalty going strong too.

New Trends in the Delivery Sector

The role of mobile apps and also web-based system of ordering food cannot be undermined at this point. With more people using smart phones, increasing literacy and access to the Internet, the fortunes waiting to be reaped from the business of home delivery are just a click away! Domino’s Pizza claims to deliver over 50,000 pizzas in a day and 15,000 of those orders are made online. Fassos is another popular food chain that doles out over 60,000 orders in a day and all from their mobile app too. Now that Dominoes and other players have tied up with the online food service site FoodPanda, these numbers are expected to double in the coming years. E-Tailing, which is having a sound presence online, is very promising for all delivery-based ‘quick service restaurants’ (QSR) compared to the revenues generated from the typical brick-and-mortar format.

Delivery-dedicated Websites

Speaking of FoodPanda (– Which is one of the biggest food service websites, picking up almost double the funding of that of Zomato, with $310 million) while global food chains and QSR like McDonald's, and Pizza Hut have their own websites from where you could order food, other businesses who want in on the food delivery business opt for websites like FoodPanda and Zomato. There are many others cropping up who have similar food delivery formats, with their own coupon and discounts system to get more customers - Just Eat and TastyKhana for instance, who have just entered the market recently. These exclusive websites earn commissions on every order and the benefit to customers is that they are able to access a number of food websites offerings at just one stop, avail discounts and exclusive offers to get maximum value out of their online or mobile app orders. Zomato is one of the most popular apps and websites that not only let customers order food from multiple restaurants, but have a rating system and an exclusive phone number using which customers could make reservations at the restaurants. Their advantage is the access to call records, using which they continually streamline their processes. It’s no wonder they have now picked up a funding of more than $163 million for business development. An interesting point to be noted here is that FoodPanda plans to extend their services and tie up with restaurants that cannot do home-delivery. There will be logistics-related investments done by FoodPanda to simply expand their reach and get a larger bite of the home delivery market. Regardless of who gets the better funding, it is the ‘total recall’ of websites that would ultimately take the biggest share of the pie. Even before Zomato or FoodPanda had made an impression on the smart Indians, there was Burrrrp!, which is now non-existent and so are other similar websites which mushroomed at one point, but could not stay true to their value proposition. We have addressed various online food services that deliver ready meals at homes & workplaces. There is another service based on the food delivery model - the online grocery market. Some of the leading names in this category include PepperTap, which recently got some extravagant funding from Snapdeal and BigBasket. Other services like TapTapMeals exist, which is delivery of “home-cooked” meals other than the usual global QSR menu.

Impact of Online Food Services on Restaurant Business in India

The format of home delivery or the takeaways have gained a lot more customers in locations such as malls, offices and big-party orders for residential complexes. People missing breakfast on the way to work, order-in. People who desire a better choice of corporate lunch or party, order in too. Everyone seems to be in awe of the online food order and delivery option for the convenience and immediate source of food at home. Besides, the convenience of ordering groceries from your mobile app or web browser has certainly taken away some market share from the trusted ‘kirana’ or the mom-n-pop stores. India is the 6th largest grocery market in the world, but the organized sector as run by some of the online businesses mentioned above makes up only for 5-8% market share of the grocery business. The vast majority is still owned by these local markets and the mom-n-pop stores. This has some obvious impacts on the brick-and-mortar formats of in-dining restaurants as more people prefer to have restaurant-style cuisines right in the privacy of their homes or workplaces, but the impact is not so much as it may appear to be. The fast food business in India is only about 2 decades old, and remains largely unorganized. Given the rate at which the organized sector is rapidly growing, it is only a matter of time and a much larger chunk of global investments before a really big impact is made on ongoing restaurant businesses that may not have a delivery-focused format of their own.

Food Tech Companies Prefer Chefs to Head Operations.

It’s not just housewives who are getting a go at entrepreneurship. To offer their flavours from home to customers who yearn homemade food, culinary talent from the hospitality industry are now most wanted at food tech companies that operate on a pure home-delivery model - for their experience, skills and expertise in the food industry. The companies want them to not only head the kitchen operations, but also work closely in bringing up new menu options and update the old ones too. Chefs enjoy complete freedom and democracy at such establishments, agrees Chef Amit Tyagi who after working 10 years at Taj, joined Yumist to bring up 2-3 dishes to the menu every week. Cook Gourmet is another platform where even culinary students get a chance to have their recipes showcased and recognised under their own names! These are musings from 19-year-old culinary student Tejasvi Arneja who got his recipe featured and is now a popular Facebook culinary celebrity.

Conclusion

The changing urban lifestyle of the average Indian is dramatic enough to be favourable for the food-on-the–go and quick home delivery models to grow at higher rates. The ever-increasing population crowded metro cities and longer travel times are drivers for the convenient, ready-to eat and cheaper options of having food and groceries delivered at your doorstep. Companies that are aware of the huge potential for growth may venture straight in, but only the fittest will survive. Businesses who keep their value proposition and their brand active in consumer’s minds, will take the biggest share of the Indian online food service pie.