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Home  /  Enterprise  /  Emerging Business  / Food for app | NOV 14 , 2014

RA Chandroo

Emerging Business

Food for app
There's a slew of food delivery apps. But will they succeed in luring customers away from good ol' phone orders?

Sonia Mariam Thomas

"We are trying to add more cities and restaurants and develop technology to make it more scalable" — Ritesh Dwivedy, founder, HungryZone 

Ordering food over the telephone is a Herculean task, resulting in shouting matches, mistaken identities and mixed up addresses. But the entry of food listing websites and apps has made life easier by giving us access to restaurants that we otherwise wouldn’t have known. Food delivery apps have taken that one step forward — you can now place your orders on the app or on its website and have food on your plate in an hour. In the past, restaurant chains such as Domino’s, Faaso’s and Ammi’s Biryani allowed customers to place orders online. 

Food delivery apps, then, are not a novel phenomenon — this is an idea that has been around for a while. Former IT professional Ritesh Dwivedy was one of the first with HungryZone (initially, HungryBangalore), in 2006 with 15 Bengaluru restaurants listed on the website. With an initial investment of ₹1 lakh and the founding team’s IT experience, designing the website was a breeze. That was the easy part — the problem was convincing restaurants to be a part of the site, especially at a time when e-commerce was fairly new to India and restricted to booking travel tickets online.

But by May 2007, HungryZone, which works on a commission basis, had listed 100 restaurants and signed up 1,500 users on its website. Says Dwivedy, “We follow a success rate model. While the service is free for the users of the app and website, we charge a 10% commission on successful orders.” Despite being in the business for nine years, HungryZone still considers itself in the growth stage. “We are constantly trying to expand to more cities, add restaurants and work on our technology to make it more scalable,” adds Dwivedy. 

 Hungry for growth 

In 2011, London-based Just Eat Holdings took over HungryZone and rebranded it as Just Eat India. As of 2013, Just Eat had gone through three rounds of investment, the first of which landed it ₹50 lakh-60 lakh. The second round came in 2011 and the third in November 2013, when Just Eat Holdings, along with Axon Partners and Forum Synergies PE Fund Managers invested an undisclosed amount.

Hemchandra Javeri, co-founder and MD, Forum Synergies says, “A strong local know-how is required to run such companies. It helps that Just Eat’s 100-strong team in India has built a strong ecosystem of restaurants over the years.” As on date, Just Eat has listings of over 2,700 restaurants across Mumbai, Chennai, Pune, Bengaluru and Delhi-NCR. With over 600,000 registered users and an average ticket size of ₹200-500, the company’s orders have grown by 200% last year and it hopes to notch up sales of ₹70 crore in FY15. 

Founded in October 2007, a year after Just Eat, TastyKhana began as a joint venture between friends Sheldon D’souza and Shachin Bharadwaj. This Pune-based company started with the founders’ savings and only five to ten clients. TastyKhana now has 9,000+ restaurants covered across India, with over a million orders processed so far. Its internal review system ensures that restaurants that are rated poorly are ticked off the list. This is because the site aims to continue its growth in terms of restaurant cover across the country; after all, it was this extensive cover and a 400% increase in the number of orders in 2012 that tempted its Berlin-based investor Delivery Hero to invest $5 million in the company.

Says Niklas Östberg, CEO, Delivery Hero, “Our strength in our core market allows us to invest in smaller companies and supply them the technological know-how and financial resources required to take them to the top of the market.” Like Just Eat, TastyKhana, too, is the Indian face for its parent, the only difference being that it hasn’t been rebranded after the investment. 

The portal’s home ground, Pune, is its strongest base. Users from the city say they rarely face problems with its delivery while placing orders via the portal’s app. Outside Pune, in metros such as Delhi and Mumbai, users are quite disappointed with the performance of the app, with many disgruntled users claiming their orders were either not placed or never arrived.

Srinivas, owner of Shanmukha restaurant in Bengaluru, says, “We have been listed on both TastyKhana as well as Just Eat and there has been a 40-45% increase in sales per day. But we find TastyKhana less cooperative as compared with Just Eat, since the company often forgets to place orders with us.” Explains Bharadwaj, “Operational efficiency is crucial in our line of business. The maximum traffic comes in during the four hours around mealtime (lunch and dinner), which is why we need to invest a more in seamless order transmission systems and good customer support channels to manage the spike in traffic.”

But it’s not as if these are the only options available at hand to both restaurants and customers. While DeliveryChef’s humble listing of 700+ restaurants and 3,500 hits daily from across Mumbai, Navi Mumbai, Delhi-NCR, Bengaluru and Pune may not seem much to a customer looking for variety, the company promises to deliver quality over quantity.

DeliveryChef founder Aditi Kapur started the company in 2010 with ₹25 lakh from her personal savings after returning home from New York. Her time in Manhattan as a student ensured that she fully understood the value of take-out and delivery. “The difference in accents made it very difficult for me to place orders and restaurants often got my name or order wrong. This is why I decided to switch to ordering food online,” she says. 

DeliveryChef takes a 10-15% cut from each order placed. Adds Kapur, “This involves zero risk for restaurateurs as the commission is charged only on confirmed sales.” Though the company’s app is new to Google’s Play Store and Apple’s App Store, Kapur is confident that it will do well, with a 25% jump in DeliveryChef’s revenue expected in the first three months of release. Technological upkeep accounts for a major chunk of expenses. The company expects food sales worth ₹5 crore-10 crore by the end of the current financial year 

Kapur insists that the best way to keep a check on quality is by filtering the restaurants that are registered on the site. “We are selective about the restaurants we list as we don’t want to damage our brand equity. We sustain ourselves by maintaining quality and not quantity,” she explains. Breaking even operationally in March this year and a ₹1-crore investment from a Silicon Valley angel investor has helped Kapur keep her business afloat. The company now plans to expand within its current cities of operation and even in Chennai and Hyderabad. For now, it is most active in Delhi and Mumbai, with the average order size being ₹500. In Pune and Bengaluru, DeliveryChef sees average orders of ₹400. 

It’s not just independent players that are part of the action. Search website Justdial also offers customers the option of placing their orders on its website and app. The company plans to integrate this feature with its payment gateway service JDCash, which is currently a work in progress.

At the moment, 60% of the restaurants in 16 cities listed on the website have opted for the service. VSS Mani, CEO and MD, JustDial claims that this was a model he had seen during his travels abroad and that he was keen on developing something similar back home. “I realised that we would need a food delivery system for Justdial as well. We were waiting for the right ecosystem and for our database to develop as well,”says Mani.

Still in pilot mode, the service is offered as an app for restaurants listed on Justdial, using cloud-hosted solutions to help them handle calls better. The service is currently offered at no charge to the customer but the company plans to monetise this by charging 10-15% on the order value. Mani remains confident that, once monetised, the service could triple Justdial’s revenue.  

Fighting the phone

Though convenience is an advantage, the biggest challenge for most of these companies is laughably basic — the telephone. Customers would undeniably prefer picking up the phone and making calls to their regular haunts when they’re hungry than have to browse through an app.

Both Kapur and Dwivedy claim that the challenge lies in changing the habits of the urban Indian foodie from making phone calls to shifting to an app or a website. Adds Kapur, “At a time when 80% of the orders placed for home delivery are via the telephone, making that shift might take longer than expected.” With players such as Zomato not planning to move towards online delivery anytime soon, the dial-a-meal concept will probably take some time to go out of style. 

Most of these companies in the food delivery app space depend heavily on digital marketing and social media to establish their presence. Kapur hopes that the app and her efforts at marketing DeliveryChef through customised e-mail marketing will help convince prospective users about DeliveryChef.

Says Bharadwaj, “To get users to move online, the first incentive is an offer or a discount that is only available online. It’s almost like getting free samples in an ice-cream parlour or test driving a car. Users will realise the benefits once they give it a shot and then hopefully continue to use it.” Just Eat has resorted to online promotions and hyper local offline promotions when it comes to marketing. “Budget is not a constraint as we have investors who keep us going.” At the moment, Just Eat claims to spend ₹250-300 per customer in terms of marketing.

But with predatory pricing looming large over just about everything sold in the food space, most of these companies are struggling to survive. Just Eat still has to break even and the others claim discounts are bleeding them dry. Mani says, “If restaurants offer discounts, then we provide them to the users. But we don’t want to offer discounts at our expense since that does not make for good business.” Adds Javeri, “There is an ongoing discounting war in the market. With restaurant chains offering massive discounts, why would anyone order through anybody else? This sort of competition creates an unsustainable market.”

Kapur whittles down the issue further, “We offer discounts that we can live with. We ask ourselves, will the customer still be happy when they are offered the food at the regular non-discount price? How long will the restaurants be able to sustain themselves with constant discounting?”

Marketing efforts aside, when it comes to Play Store downloads, the likes of Foodpanda, Zomato and Justdial still dominate the space, with Justdial offering consumers a lot more than food delivery online. Foodpanda gets 60,000-70,000 visitors every day on an average, with more than 50% of them new visitors, and has seen 100% QoQ growth in sales across India.

With 500,000+ downloads from the Play Store, co-founder and MD, Rohit Chadda says that Foodpanda “helps consumers navigate through a variety of restaurants that deliver in their vicinity and offers them the option of paying online, which isn’t possible while ordering by telephone. Moreover, we have seen higher customer retention among app users as compared with web users.”

Many users say they are still not too comfortable with food delivery apps in any form. As with most e-commerce trends, there seems to be an initial skepticism surrounding the idea of ordering food online. Since food is an impulse buy, they don’t want to take the risk of not being able to communicate the order right.

For those who didn’t scoff when asked if they use the apps and had actually experienced the wonders of ordering food on their mobiles, the biggest problem was still the reach of these restaurants. In a country that is bulging at the seams with eateries, these apps have to constantly keep updating their reach. Kolkata-based student Aman Gupta, who trawls the net for the cheapest deals, says, “I order a thali for dinner every night from a place called Pehelwan Dhaba.

Unless apps are able to provide that level of coverage, I will stick to my phone.” Media professionals like Aashish D’mello and Bushra Faiz say they hate the minimum delivery requirements on such applications, given that the limit doesn’t exist or is lower when the order is placed over the phone. Faiz adds that the constant spam mails after registering for apps are quite irritating as well. 

In a marketplace that has seen a glut of local and national players, it will be difficult to predict how these companies plan to remain at the top of their game at the moment. Though all the players involved are comfortable with their current strategies, it is unclear who will take pole position in the food apps space.

Explains Javeri, “The core of this industry is customer delight; the app is secondary. If the food delivery doesn’t match expectations, there is no discount that can bring them back.” And thus continues the fight among the various players for their slice of the food delivery apps pie. 

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