India's growing appetite for food service startups

Over the last year, food-tech startups have garnered investor interest. But the extent of growth hinges on the scalability of the business model, say industry watchers

Published: Mar 18, 2015
Saurabh Saxena, founder-CEO of Holachef, which has 150 chefs on its platform
Image: Mexy Xavier
Saurabh Saxena, founder-CEO of Holachef, which has 150 chefs on its platform

People who love to eat are always the best people, or so declared the inimitable American chef, author and TV personality Julia Child (and who are we to disagree?). India’s rapidly growing food technology space couldn’t agree more. With an increasing number of consumers looking for newer offerings, the market is, quite literally, ripe for the picking.

Be it for healthy salads, sandwiches, continental or home-cooked meals, online and mobile-only-food services startups are increasingly developing an appetite for the country’s busy urban population that seeks wholesome, nutritious meals, but may not have the time or inclination to prepare them.

Over the last one year, the number of such food-tech startups has grown exponentially across the country, garnering investor interest. Reason: The business is touted to be the ‘next big thing’ by industry watchers in the consumer internet space after ecommerce and cab-rental services. According to Tracxn, a database for startups and private companies, in the food-tech space, out of 145 companies that operate in the country, 66 were launched last year.

Globally, both food-on-demand startups such as the US-based Sprig, SpoonRocket and Munchery and ready-to-cook food kit services like Blue Apron and Plated, all of which rely on apps and online ordering to deliver meals to customers, have been a success story. A Forbes article, dated October 2014, estimates a $180 million valuation for San Francisco-based Munchery, while New York-based Blue Apron was rumoured to be valued close to $500 million last year when it raised a funding of $50 million. According to a December 2014 report by Tracxn, $1.2 billion has been invested last year across multiple deals in the global food tech space.

Can this buoyancy be replicated in India?

There has already been movement, but experts reckon the extent of it would depend on the scalability of the model. “Anybody who can build scale has the potential to build a very good company. Food has a sizeable wallet share. It is said that globally the next Uber will come out of here [the food tech space], maybe even from India,” says Abhishek Goyal, founder, Tracxn. “Investing in technology and backend is of utmost importance. You have to scale up there. It helps keep other costs lower.”

Take Mumbai-based Holachef for instance. Started by IIT-Delhi alumni Saurabh Saxena, Anil Gelra and Ritu Rana last May, this meal-service startup actually serves as an online marketplace for chefs—professionals as well as amateurs (homemakers)—to list their signature dishes. The company chooses to not have a central kitchen in order to save on rentals. The costs incurred by them are in technology (app and website that takes care of taking orders), packaging and door-to-door delivery.  “We want to create a community of chefs while serving good, home-cooked food to the consumers,” says founder-CEO Saurabh Saxena (33). “We might rent spaces offered by the chefs themselves, but don’t intend to build a central facility now. The food is prepared in home kitchens.”

Holachef has got 150 chefs on its platform already, some of whom have had stints at hotel chains like the Taj, Le Meridien, and Marriott. At any given point, the platform has 40 active chefs who service consumers in Powai, Andheri, and Mumbai’s central suburbs. Holachef has grown from five orders in September 2014 to 150 orders per day in January 2015. “We have been able to retain 60 percent of our customers. The average order per person is five every month,” says Saxena.

Growing at 50 percent month-on-month in revenue, it is targeting over 200 orders and 450 meals a day by the end of February. It is also looking to enrol as many chefs as possible. “We track analytics and reviews to know which dishes and chefs are being liked by our customers. It helps us arrive at the right mix in our meals,” says Saxena, adding that variety in menu and the quality of food will be key differentiators going ahead.

The company has attracted investor interest and raised Rs 2 crore led by IndiaQuotient, a seed-stage venture capitalist firm, in February. It is also looking for Series A funding of Rs 20-30 crore in the coming months. Most funds will be utilised in building the technology backend and optimising delivery.

While Holachef’s average price for a dish is Rs 200, which might be on the higher side, investors believe that customers are willing to pay a premium for good, home-cooked food. Anand Lunia, founder-partner at IndiaQuotient, says, “When customers know that it is fresh food, and not refrigerated, and has been cooked at home with good quality ingredients, they are willing to pay extra.”

Frsh co-founders Badal Goel (L) and Sumit Tuteja
Image: Amit Verma
Frsh co-founders Badal Goel (L) and Sumit Tuteja

Lunia also endorses the less capital intensive no-kitchen marketplace model. “There is no need for a centralised kitchen and an assembly line to cook food… it is a network of local chefs which is preparing the food. Few years ago, nobody must have imagined that there could be a marketplace model for the food business very much like in the taxi and ecommerce industry,” he says.

Bangalore-based SpoonJoy, too, operates sans a central kitchen facility as the model is highly scalable and profitable compared to quick service restaurant (QSR) formats, which have to set up an outlet every time they enter a new location. SpoonJoy also saves on cost as it ties up with restaurants, which prepare the food based on their guidelines and menu. It controls the quality, sourcing of the ingredients and does the last-mile delivery. The startup pays a certain commission to the restaurants based on the order. Currently, SpoonJoy has tied up with five restaurants in Bangalore, while four are in the pipeline.

For IIT-Roorkee graduate Manish Jethani, founder of SpoonJoy, the idea behind an online meal-delivery startup that relies on apps to deliver food to customers was to solve the very basic problem of providing good quality food at an affordable price. Jethani (29) was so convinced of the opportunity in the food space that he quit a high-paying corporate job in Gurgaon and relocated to Bangalore to start SpoonJoy.

“Food is a basic necessity, so the market is much bigger than an ecommerce and online taxi-rental service. The amount of money an individual spends every month on food is much more than he or she does on hiring cabs or buying products online,” he says.

Jethani launched his venture last July with an initial capital of Rs 5 lakh. It is now backed by seven angel investors, including Flipkart’s Sachin Bansal (who invested an undisclosed amount in December 2014) and Delhivery’s Sahil Barua among others. SpoonJoy’s menu includes mostly sprouts, salads and fruits, and its intent is to “make nutritious food affordable to a larger consumer base”. A dish is typically priced under Rs 100; orders per day have grown from Rs 150-200 to Rs 400-500 in the last two months, particularly riding on burgeoning demand from offices.

“Office food is emerging as a prime category, and SpoonJoy is providing good quality stuff. It is choosing dishes where the chances of going wrong are limited. Like you really can’t do much wrong with a Greek salad,” says Tracxn’s Goyal, one of the investors in the company.

Gurgaon-based Frsh is another startup which operates in the space of healthy food targeted at offices. “We realised that most people in urban offices end up missing breakfast. That’s what we wanted to serve,” says Sumit Tuteja (30), co-founder, Frsh, which started in January 2014. It began by serving breakfast at American Express (where Sumit was working) in Gurgaon. It has slowly spread to 1,300 addresses in the city, and is servicing more than 500 orders a day, more than 80 percent of which are repeat customers.

“We are not an aggregator. We are building our own food brand. We are keen on quality and uniformity of food. And are investing heavily in kitchen operations,” says Frsh co-founder Badal Goel. The company has roped in a chef from Oberoi catering to manage a bigger kitchen. “We will also become the first company in India to make the kitchen live,” says Goel, 32.

The role of technology in scaling up operations is immense, admit the founders of Frsh. Last month, it raised Rs 3.2 crore from early-stage investors IndiaQuotient and Kae Capital. The investment is likely to be utilised in building supply chain infrastructure and expanding kitchen operations.

SpponJoy co-founders Manish Jethani(L) and Prateek Agrawal
Image: BMXIMAGE
SpponJoy co-founders Manish Jethani(L) and Prateek Agrawal

But scaling a kitchen operation might be complex. “The internet part of the business can be scaled up. But the restaurant part of the business poses a challenge,” says Ritesh Banglani, partner, Helion Ventures, which has invested in iD Fresh Food, a ready-to-cook packaged food company and QSR chain Mast Kalandar. “Limiting the scope of the menu can be one way to do that, such that you have fewer moving parts. You could have one central facility for the cooking and another for the assembling and supply of food,” he says.

Bangalore-based FreshMenu, which started in October 2014, isn’t keen on easy delivery meals or super-fast order-taking apps (Eatlo, for example, where it takes less than a minute to place an order on the app). Instead, it chooses to focus on a differentiated menu and attracting consumers with variety. “Our menu comprises a lot of global cuisine that is not readily home-delivered. For any successful food business, the quality of food will eventually be the differentiator. Nobody is going to eat your food just because you have a cool app or technology. The real test will be to offer food that tastes good every day,” says Rashmi Daga (35), founder, FreshMenu.

Sheldon D’souza, co-founder and CTO, TastyKhana, a food-ordering platform, concurs. “Building an app is not difficult. But you have to provide a wider choice to the users,” he says. Pune-based TastyKhana was started in 2007 by D’souza (33) and Shachin Bharadwaj (33). It has partnered with around 9,000 restaurants from 160 cities across the country. It operates on a commission-based model and places your order to the restaurants. It processes about 4,000 orders a day and plans to start managing deliveries which, until now, had been the responsibility of restaurants. “We want to improve that experience, and control the quality of delivery,” says D’souza, who reckons that controlling last-mile delivery holds the key in the next phase of growth.

Last November, TastyKhana got acquired by Foodpanda, the Rocket Internet-backed global online food-ordering marketplace, for an undisclosed amount, indicating the consolidation that the space is possibly headed for. Foodpanda has been aggressive in the last few months, increasing its visibility with ad campaigns on all media platforms. It competes with TinyOwl, Just Eat and the likes in the country. In February 2015, Foodpanda acquired rival JustEat to ramp up its presence in India. Though order-taking apps are a hit with consumers, slow (or poor) service from restaurants can jeopardise things for companies. And thus, “the after-sales process is a critical area… the order has to be processed faster with the restaurants to deliver the food on time,” says TastyKhana’s D’souza.

However, with rising demand for quick, efficient service, there might be a dearth of reliable delivery boys. “Scale of demand is not an issue, but for us, the challenge is to get delivery boys. As the food-delivery market develops, the availability of delivery boys should also increase,” says Shashaank Shekhar Singhal, co-founder of TapCibo, a Bangalore-based mobile-only food ordering service. Optimising deliveries is crucial too, so that companies don’t spend too much on large delivery teams.

TapCibo not only takes orders but also offers Indian and Chinese dishes under its own brand name. Started in August 2014 by former redBus mobile products head Singhal (29) and Android developer Monica Rastogi (37), it launched with a single cook, received orders via WhatsApp, prepared food at the founder’s home, and delivered to about 10 people every day. “We started getting repeat orders. That’s when we realised that there’s a demand for good food at a reasonable price, and we finally launched a mobile app in October 2014,” says Rastogi, who developed the app herself. TapCibo raised an undisclosed amount in January this year from Alok Goel, founder of FreeCharge, and plans to partner with local restaurants soon to expand its menu.
 
The potential of the online-food services market is undeniable. What is still being figured out by investors and startups, however, are the business models. Three models have taken shape thus far: The food-ordering apps (TastyKhana, TinyOwl, etc) that simplify ordering and place your orders to the restaurants; the food-ordering and delivery apps (Holachef) which neither own space nor cook the food; and finally, the internet-restaurant model (Frsh, TapCibo) that are essentially building quick-service food brands online. (“We have already replaced Dominos [a leading quick-service chain] at office parties, and are getting bulk corporate orders,” says Frsh’s Tuteja.)

There’s also the other kind of player in Zomato—the homegrown online restaurant-discovery site that built a multimillion dollar business by merely listing food menus. The six-year-old startup is now valued at $660 million and aims to start table booking services on its platform.

A wide variety of services are on offer but it is only natural that only a few will survive. Consumers are not going to download 20 different apps for food services, say industry watchers. “Questions are still being asked and answered across the board on the pros and cons of various business models. What we do know is this—the potential scalability is a million orders a day. That’s when you start making money,” says Tracxn’s Goyal.

While the endgame is still unknown, there’s surely a lot to munch on.

(This story appears in the 20 March, 2015 issue of Forbes India. You can buy our tablet version from Magzter.com. To visit our Archives, click here.)

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  • Amit

    In this case who is responsible for the food quality and safety aspects, on who\'s name they are taking food license ? If anything happen to consumer after consuming that food, who will be liable for ?

    on Aug 17, 2015
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