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FoodTech Startups – what is wrong and what is going wrong

Image Source – Wikimedia


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

  1. No Capital Investment ( Fixed Asset Creation is minimal)
  2. No Government related policies which can restrict entry
  3. No Major product Differentiation
  4. No Established brands
  5. 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.



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  1. Honestly i dont understand this Foodtech business.
    Kalpesh are right that this business case in the current narrative doesnt add up.

    Even the financial dont make sense

    A guy can do max 12 delivery as he has to source stuff from different restaurant & also demand is only during lunch and dinner hours.
    Average order size will be around 400 bucks as most family are nuclear.

    So revenue generated is 400 X 12 = 4800


    The delivery boy receives 7 rupees per km as conveyance and assuming he travels(to & fro) 5 kilometers for one delivery his conveyance will be 7 x 5 x 12 = 420

    Assuming a modest salary of 15000 (attrition are very high) and he works for 25 days in a month. His per day salary is 15000/25 = 600

    As it an organized labor the organization might have to contribute atleast 2500 toward his PF, ESIC, insurance, employee benefits etc. That will work out to be 100 rupees per day.

    So per day expense will be 1120 (420+600+1120)

    I believe they might get 5% commission for delivery however even if i assume that they get 20% commission (not possible) on the total food value they still be under loss of Rupees 160 per day. We have not even factored the operational cost, marketing cost, administrative cost etc.

    However it is interesting to see investor are ready to throw millions on such a business.

    May be i am an idiot who doesn’t see the bigger picture or may be i am not

  2. I can’t be sure but following the TinyOwl saga it makes me wonder the premises on which VCs invest someone’s hard earned money on company’s who are founded by people graduating from so called elite institutions IIT & IIM.

    First of all IIT & IIM grads are getting subsidized education. We the tax payer are paying for their education. They can easily pay student loans if required since they are always entitled to get better salaried jobs then remaining masses who are considered as stupid & below average by our esteem Indian Corporates especially their HRs who have no qualms in discriminating based on institution for exactly similar job position.VCs criteria should include basic human concern for fellow employees on whose time & effort company is built.

    Seeing today’s startup media exposure I feel like founders are trying to sell like a friday movie postures & who is better than who. Its a business afterall. Not a race to win the top spot like SRK. Let that spot be decided by the product & service & not by funding & social media hype.

    All these ecommerce startups should stop saying they are technical companies. Merely making a website & a mobile app doesn’t make a company technical. Its an insult to actual technologically ingrained companies like Google, Amazon (AWS), IBM etc.

    With so much explosion of young population & media attention to startups, ecommerce business is going to remain hypercompetitive with very slim margin of difference between each other. Sustainability vs Growth vs Gold Rush?

    Tomorrow we will face situation created by our Today’s decision.

  3. in the language of VC its all about vision & big market. for that only IIT & IIM are allowed

  4. There is another way to look into this:

    1. How many restaurants pay right amount of taxes? Restaurant business is something that majorly runs on cash. Any business that involves cash transactions, numbers can be manipulated to save tax amount to be paid. By being totally dependent on a 3rd party online/ mobile app order system, a restaurant is giving away sales figures to the food-tech company as well as the transaction is recorded. Why would a restaurant want that at first place.

    2. Restaurant business in India is one of the way to convert black money to white. Over a period of time, these cash transactions sum up to payback the black money into white. All it takes is patience. A lot of it. I once had a conversation with someone who was about to open a restaurant to do black to white conversion which was a 2 year project with manipulating all fake cash transactions. We have seen a digital version of it in Foodpanda case.

    One important thing to note is these food tech mushrooming these days. But contrary to it there will be soon scarcity of food in this country. Let me give you my example, I come from a small town in Jharkhand. Recently when i visited my hometown found that the fields in our villages are barren. I asked why noone is cultivating on these lands. My father told that no one these days wants to do farming. All moving to small big towns to work in factories. Moreover, govt. is giving ‘lal card’ owners ration of rice and wheat for mere Rs 1 per kg. Subsidised rates to poors. So these poor people no longer want to work in the fields. 4 months it takes to produce wheat. Half an hour to cook roti. 5 minutes to consume it. Now with one tap order from these apps and Dominos’ 30 min or free has spoilt us. Soon a day will arrive when there will be more such apps but less food to eat.

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