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Food Delivery Race Heats Up in Asia Pacific, Part 2: India

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In this two-part series, Euromonitor International examines the potential for the expansion of food delivery services in the Asia Pacific region. While the first part conducted a cross-market comparison of the largest and fastest-growing markets for home delivery in Asia Pacific, this second part focuses specifically on India, which, despite the failure of first-wave start-ups, has by far the most market potential for global food delivery services looking to expand in Asia.

India's Market potential, by the numbers

With total foodservice value for home delivery topping US$2.9 billion, a figure that is expected to grow an average 12% each year to 2020, the market for home delivery in India is the second largest in Asia Pacific and the potential for food delivery services is undeniably large. Favourable demographics drive this potential. With a national median age of 27, India’s urban centres are filled with floating populations of young, single consumers with corporate jobs – a consumer base that is growing along with India’s maturing economy.

India largely lacks a culture of dining out. While going to restaurants is relatively uncommon and is usually reserved for special occasions with family, it is traditionally far more common to cook at home, when possible. However, the increasingly large pools of workers that have money to spend on dining out, but largely lack the time, must find more convenient ways to eat. As labour is relatively cheap in India, it is common to hire a personal chef to cook meals at home, for example.

Nevertheless, it has also become increasingly popular to order meals for home delivery. As this type of service has become more widely available, it has naturally increased demand for food delivery services. This demand is ultimately driven by convenience. As the technology improves, consumers are drawn to certain convenience factors, such as online ordering, cashless payments and the freedom to choose from a wide variety of cuisines – all factors that were not possible only a few years ago. These consumer preferences fuel the demand for services that can keep pace with the increasingly busy lives of this large consumer demographic.

Failure of first-movers

Sensing this potential, and given the success of food delivery services in other markets, global food delivery and local investment companies turned their attention to India as a good potential market in which to expand. Global players like Berlin-based Foodpanda, as well as local start-ups such as Mumbai’s TinyOwl, attracted a flurry of investment in 2014. Foodpanda and TinyOwl, and other more seasoned players such as Zomato, a restaurant directory service from 2008 that also jumped on the food delivery bandwagon, used the cash to expand quickly, utilising a first-mover advantage to gain market share, and spent heavily on hiring and advertising.

What they didn’t spend enough on, however, was training. Delivery people, very much a critical link in the food delivery service, were not well equipped to meet the sudden demand. Navigating India’s complex urban environment proved to be a greater challenge than expected, and drivers were frequently lost en route, causing delays of upwards of an hour and the quality of the food to decline. Local delivery people were also often unable to communicate with their customers as the typical consumer, as a member of India’s floating population of workers, cannot speak the local language, adding to the frustration of the delivery process.

Global food delivery services suffered other problems as well. Reports of fake restaurants and theft from employees damaged their reputation, and poor technology plagued the apps. Furthermore, while delivery services were initially able to entice consumers quickly with special deals and incentives that kept prices low, initial profits were low as well. These poor experiences helped lose the loyalty of the huge consumer base they had initially attracted, and unsustainable expansion forced companies like Foodpanda and TinyOwl to downsize just as quickly as they had grown.

Second wave success

The failures of the first wave of food delivery services in India eventually gave way to an improved set of start-ups. Swiggy, the Bangalore-based food delivery service, for example, largely addressed these issues and, after attracting a wealth of investment, spent more on training and improved on logistics and other technological challenges. Having only entered the fray in early 2015, Swiggy is already one of the most successful services in the market.

Much like Uber, Swiggy’s app is embedded with a GPS navigation system that allows consumers to input their delivery address, providing the delivery person with a more accurate and efficient method of navigating. Swiggy is also currently the only app to offer an online payment service, allowing consumers to order more efficiently, and the company offers other incentives, such as a no minimum order policy.

Swiggy has expanded to nearly 5,000 restaurants, and with an average delivery time of 36 minutes, according to local entrepreneur-focused editorial Your Story, the company has gained a reputation by consistently offering more efficient delivery services and higher-quality products. Swiggy has been so successful that the company has attracted the attention of global foodservice companies that lack delivery mechanisms of their own, such as Burger King and Starbucks. Partnering with these large global companies has given Swiggy exclusive delivery rights, which should help solidify the company’s presence in the market.

Competition from fast food chains

While global foodservice players like Burger King and Starbucks have partnered with third party food delivery companies, others such as Domino’s Pizza have carefully developed their own in-house delivery services. India is Domino’s largest international market, with close to 1,000 outlets across the subcontinent, and the company has become highly popular largely because of its delivery services. Domino’s guarantees delivery of its pizzas within 30 minutes of ordering or the order is free. So far the company has a 99% successful delivery rate, according to Fast Company, and has achieved this by strategically opening outlets in neighbourhoods with favourable traffic patterns and by implementing a finely tuned training programme for its employees.

Global fast food chains like Domino’s have both the financial backing and the global reputation that third party food delivery start-ups lack, and they are better able to control the quality of their food. Indians, however, prefer to have a variety of options when choosing what to eat, especially as more consumers do this on a daily basis, and so they will naturally gravitate to an app that offers a variety of cuisines, as long as the service behind the app operates with the same level of quality assurance as food delivered from a chain.

A favourable market, but challenges remain

India offers a wealth of potential for food delivery services that take the time and attention to learn the distinct qualities of the market, and learn from the failures of initial start-ups, but there are other challenges that new entrants will have to contend with. Modern food delivery companies, for example, will have to compete with more traditional Indian delivery services such as the dabba walas, a century-old food delivery institution in Mumbai.

The dabba walas cater to the work lunch crowd, delivering boxed lunches to companies on a subscription basis. This system has stood the test of time and has consistently employed a fleet of approximately 5,000 individuals, all of whom have regular delivery routes and steady pay. This institution certainly provides a more stable working environment than the more volatile, tech-driven services of late, and caters to an extremely loyal, albeit slightly different, consumer base.

Additionally, home delivery is largely limited to India’s urban areas, and a large portion of the population still resides in rural regions, where there is little or no demand for home delivery. The demand for food delivery services is also limited to a very specific subset of the Indian population. That said, the resultant consumer base is large and expanding, and while the market for food delivery services remains limited and fragmented, there remains much potential for growth.

Despite earlier setbacks, Foodpanda still has a large presence in the market. Taking the strategy employed in other markets, such as in Hong Kong, the company is acquiring other successful start-ups and gaining local market experience in that way. Foodpanda recently acquired Justeat.in, for example, a popular food delivery service specialising in healthier cuisines.

Either way, the growth potential in India is huge. In absolute value terms, the market for home delivery in foodservice is set to grow by nearly US$2.1 billion between 2015 and 2020, and with home delivery set to experience rapid growth throughout the greater Asia Pacific region, along with an eager consumer base to match, global food delivery services have much to gain.

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