The obvious effect of what is going wrong in Food Tech is the complete winding up of operations, location based windup and layoffs.
For sake of simplicity, let’s analyze what is wrong and going wrong through the classic strategy model of Michael Porter. There can be a deeper analysis which can be undertaken by many other models as well and which may offer better insights.
Porters 5 Forces.
A) Threat of New Entrants
B) Threat of Substitute Products/Services
C) Bargaining Power of Buyers
D) Bargaining Power of Suppliers
E) Intensity of Competition Rivalry
While the Porter model assumes that interplay between forces does not exist, my arguments are taking into account that there is an interplay. Without going into all factors in the FoodTech Industry which determine the above forces, let look at the factors which actually are key factors which affects this industry
A) Threat of New Entrants
- No Capital Investment ( Fixed Asset Creation is minimal)
- No Government related policies which can restrict entry
- No Major product Differentiation
- No Established brands
- Size of Market (This one is a joker in the pack) to offer economies of scale
The above clearly makes it a free for all purely from an entry perspective. Whilst it may be true for many tech companies in aggregation space but one size fits all approach (Not segmenting the market and finding a profitable segment to work within) plagues this industry. Off late some innovation on product side (Revolving Cuisines) is to be seen but whether the segment is large enough to be profitable does not seem so and more so because the other forces don’t seem to have got adequately addressed. Existing players will always experience threat from nimble footed or deep pocketed competition. Pricing power is one area which they have no control and unlikely they will have control over in the future as well. No doubt that Prime Mover Advantage is an established competitive plus, but this industry is still nascent and it is unlikely that somebody will actually get tagged as or become the prime mover in the near future.
All of this has resulted and will result in subvention of investor money to drive GFS (Gross Food Sales). Many players have run out or running out of such supply as has been reported. The cash burning will continue as entry barriers are low and neither have the existing players tried to erect such a barrier to develop a competitive advantage.
B) Threat of Substitute Products/Services
Here there are two major factors which in fact were the core things which food tech players were trying to substitute
a) Order Fulfillment & Delivery Mechanism
b) Place of consumption
This aspect was always about making an assumption and it depended on which side of fence you were or are. The first and foremost assumption being food outlets which don’t have evolved order acceptance and delivery capability will be able to serve consumers, through food tech channels. The said assumption is a paradox. Paradox because no business would want not to serve consumers if there was demand. They would have and will develop the capability/mechanism to fulfill demand. The fact is that food tech still relies on supplier (restaurant) channel for fulfillment of orders recd through its platforms.
Another assumption being, there is a latent customer need to consume(order) food from a popular source, which may not be in vicinity to customers place of consumption.
The point being missed was and is, Eating out is a planned activity, a social statement. The said statement does not show up, when food is consumed at any place other than the origination (restaurant) and thus it cannot be substituted that easily. Eating at home, workplace is more about convenience, is not a planned activity and is also a function of availability of time. Ordering food from a source which is outside the catchment area (place of consumption) is more an outlier scenario.
The above stated core products were not a cakewalk which would have or will get substituted that easily because it involves fundamental change in human behavior. Changing behavior is easier said than done.
C. Bargaining Power of Buyers
There is no doubt that Bargaining power of buyers was one among the top two forces which was going to determine the measure of success for foodtech. The bargaining power here is a bit more complex than it seems, as there are also emotional factors at play. The latter is the one which may cause the highest pain to newer models comprising of central kitchens & revolving cuisines
a) Price Sensitivity prompts consumers to become bargain hunters, thus there is no loyalty to a platform. In the trade off between convenience and cost, cost always wins. Customer is not going to pay extra for convenience as the perceived inconvenience of ordering food through alternate means is not that significant.
b) Love in India as they say is not spoken but eaten. A number of people who have been associated with Food industry know the reason why ready to eat has not been so successful because Indian Mother or Wife still express’s love through food and there is this invisible hand of guilty consciousness which they experience (it may sound retrograde but is true) when they don’t cook for sons, daughters & husbands
The above is likely to ensure that frequency of eating non home food does not increase even if it is available at a fingertip.
D. Bargaining Power of Suppliers
This according to me is second most important factor which affects pure aggregators. As the saying goes a bad product cannot sell no matter how well the marketing is, similarly food from a perceived bad restaurant or about which there is no opinion in the consumers mind is unlikely to sell, even if food from the said is available at a bargain. Similarly food from a perceived good restaurant will get not discounted (Margin sharing with Foodtech) by the said restaurant that easily, even if customers within its catchment are on the food tech platform. Here the channel in question, which is foodtech, can do nothing much because
a) Differentiation between suppliers is significant. (Mainland China, Chinese Food in customers minds will always be different from another restaurant in Chinese food space)
b) Strong Suppliers have evolved delivery channels. With or Without Food Tech they have capability to fulfill customer demand
c) Supplier Switching cost from one platform to another is minimal and thus food tech has virtually no control on supplier loyalty or exclusivity.
All these basically translate into inability of food tech to substitute suppliers. The supplier is unwilling to compromise on margins or is unwilling to offer credit window for the incremental delta which may happen on account of food tech. These effectively limit the foodtech’s pricing power for its customers
E. Competition Rivalry
Rivalry has driven companies into a thoughtless battle wherein, in the race to onboard suppliers (restaurants/revolving menus), signing up customers (Onboarding expenses) the classic military strategy was & is being followed. Signing on suppliers with bargaining power (Established ones) without being able to drive a win win bargain or signing on the opposites don’t help. All such strategies results in waste of ammunition (money spent on onboarding, sales effectiveness, sales productivity for supplier onboarding, unwarranted working capital spend). It is like giving revolving credit limits to companies which are cash surplus and who will not draw such lines for banks to earn interest or sanctioning credit limits to such who don’t have capability to repay. Battles in the marketplace fought by such rivals don’t result in any winner. They result in loser who loses by a large margin and another loser who loses by even a larger margin. Nobody in Food Tech is or was seen as trying to establish a higher ground. To dislodge an enemy from higher ground requires may be 5 times the firepower (ammunition). Consumers mind is the battle ground. In the consumers mind no food tech currently seems to be occupying a high ground. There is no player with superior fire power. All of them have similar equipment’s to fire, some with more of same equipment & manpower and some with slightly less of the same. The said thus cannot translate into a clear winner but only a loser by large margin and even larger margin.
The General makes the mistake and soldiers pay the price in wars. In this case people who are losing jobs are soldiers and they are paying price for their Generals Assumptions and Strategy.
The income & expense transition which has been seen in economies which have transited from where India is now, clearly show that, Spending on Food, Entertainment Spends, Discretionary Spends & Travel Spends account for a large chunk of spends which happen on account of increased incomes.
Food space is definitely one area which is going to attract a lot of customer’s wallet, but it seems that a large part of available wallet spends may happen by way of customers making Social Statements by eating within restaurant premises. After all human being is a social animal and that truly explains the success of various social media platforms.
Please do share your thoughts and views as what I have stated offers only a limited analysis and is definitely constrained by the model, availability of information and my thought process.