Food-Tech Start-ups: Has the upswing really started?

The following article is based on my own interpretation of the said events. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.

Monica Patra, MBA 2015-17, Vinod Gupta School of Management, IIT Kharagpur


 

India’s largest restaurant search and food delivery startup, Zomato, announced early this week that it has broken even in several big markets – including India – and will hit profitability by mid-2016. With this statement it became the only Indian e-commerce unicorn to become profitable, a significant milestone in a market where Indian startups are finding it quite challenging to lure investors for subsequent rounds because none of them are close to profitability.

Prior to launch of Burrp, restaurant information was available in annual food guides and eating-out directories of restaurants. But 2006 saw a significant change in the landscape as Burrp pioneered in the food-tech space. This was the first time a company was trying to bring technology to the restaurant-discovery space.Its initial business model revolved around charging businesses a fee for premium listings, banners, affiliate ad revenues and a combination of SMS marketing. These were early days when smartphones weren’t as popular as they are today.

With a big push from smartphone-driven Internet growth, companies in the food-discovery space realised that these business models do not have the potential to scale up substantially.Start-ups in 2012 started offering discount coupons, incentives with online-ordering services. The largest market share was occupied by  FoodPanda back then. Then the sector saw more and more companies trying to enter the already crowded food-tech space.

Food-Tech start-ups have had a particularly harrowing 2015. Many have been forced to lay-off massively and shut down operations in smaller cities. Some food startups have shut down entirely and others have been accquired. Zomato too scaled back in four Indian cities and has laid off a few hundred employees last year. Seize of Tiny Owl office and the allegation of violations and underhanded transactions at FoodPanda lost the confidence of the investors.

The food-tech ecosystem hasn’t evolved yet,  it will mature, but this will also mean that many apps and websites will shut-down and only serious players will stay.

Entrepreneurs need to find the “why” of their business such that it identifies a real problems that the are trying to fix. Food-tech is a tale about the perfect marriage between the merchant and the customer. There has to be a fine balance between both. Well funded start-ups need to slow down to build the right systems, processes and identify young leaders in the team . A sound foundation may take some time, but will be more sturdy to build upon and will not collapse on the face of massive growth.

References:

http://www.forbes.com/sites/saritharai/2016/02/08/food-startup-zomato-is-indias-first-unicorn-to-break-even-headed-for-profitability-by-mid-2016/#5b4cae4d2bb9

http://www.firstpost.com/business/startup-india-the-food-tech-sector-has-seen-ups-and-downs-but-still-promises-to-grow-2582738.html

 

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