Online ordering of food in India is still in its early stages despite gaining visibility recently. According to a report by Kotak Institutional Equities, though the total food delivery and takeaway market in India was pegged at $12.8 billion in 2014, the online food delivery market size is only around $95 million at about 0.7 per cent penetration. “Despite the visible popularity of online food ordering, we reckon only 27 per cent of the 40 million online shoppers are ordering food online,’’ the report said. Kotak Institutional Equities (KIE) is a division of Kotak Securities.
The report concludes that break-even across models could be achieved with a ramp-up in order run-rates and better margins. “While some consolidation in the form of shut-downs and scale-back of operations has already happened, there may be room for more consolidation,” the report said.
According to the report, e-commerce companies in the food-tech space are present across the delivery value-chain in the form of order aggregators such as Zomato, Swiggy, Foodpanda and Tinyowl with outsourced delivery; as full-stack food delivery companies such as Freshmenu and Holachef; and as B2B delivery outfits such as Grab, Roadrunnr and Shadowfax, which work with aggregators and restaurants.
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“None in the three business models is currently breaking even (in EBITDA terms),” the report points out, citing low order-values and volumes. “Some of this is also a function of competitive intensity, with two or more players going after the same set of customers and offering discounts, thus impacting unit economics,’’ it further added. “Broadly, the aggregator model requires sharply higher order-values and commissions for it to break even, the full-stack model requires both higher volumes and order values, and delivery companies need to fulfil more orders per day per rider over shorter distances,” the report argued. Compared to the 10-12 cities covered by the Indian food delivery companies, comparable companies have scaled up operations to cover 200-plus cities in China with online food delivery sales estimated at $20 billion in 2015 in China.
Among the reasons the report cited, as to why only a fraction of the 40-million-strong online shoppers order food online in India, are - geographical limitations (as most delivery companies service only 5-10 cities), wider delivery networks of several restaurants (which themselves deliver food to clients), and lack of active discovery by users, leading to ordering from only known restaurants. “While the trend is changing in the metros, it may still take some time before it takes off in Tier II cities,’’ the report noted.