Since the Covid-19 pandemic hit in March, food delivery apps have become essential in India. As Coronavirus cases surged across the country, people began to prefer ordering online, thereby, boosting sales for companies such as Swiggy and Zomato.
And as food delivery apps began to witness a surge in demand from customers who have been working from home ever since the pandemic struck, global investors, in turn, began to feel confident enough to pump in money into these delivery businesses.
The numbers are telling. This year so far, online food delivery companies have garnered $1.36 billion in nine funding rounds, despite the pandemic-hit market, according to data from analytics firm Tracxn. The data reveals that currently the most-funded companies in the online food delivery space are Gurugram-based Zomato with ($1.9 billion) in total funding, followed by Bengaluru-based Swiggy at ($1.62 billion), and Foodpanda India ($238 million). Foodpanda India—which was a part of Germany’s Delivery Hero AG—was bought by taxi-hailing service Ola in 2017.
Last week Zomato, a food ordering and restaurant discovery platform, closed a $660 million primary financing round at a post-money valuation of $3.9 billion with ten new investors participating in the company's latest funding round. The new string of marquee investors include Tiger Global Management, Baillie Gifford, Luxor Capital, Kora Capital, Fidelity (FMR), Steadview, and others.
“December 2020 is expected to be the highest ever GMV [gross merchandise value] month in our history. We are now clocking about 25% higher GMV than our previous peaks in February 2020,” Zomato co-founder and CEO Deepinder Goyal tweeted last Friday.
Online companies in India typically don’t share their actual revenues. Instead, they use GMV, which is the value of all goods sold on the platform, barring discounts and returns.
Goyal pointed out that the tailwinds for food delivery businesses are clearly visible, “and we believe that the growth of the sector will accelerate post-vaccine.”
In January this year, Zomato acquired Uber Eats, Uber’s food delivery business in India, in an all-stock deal. Though it didn’t specify the valuation at which the deal had been struck, it is expected be around $300-350 million.
“The food tech space, especially online delivery, cloud kitchen, ready to eat, ready to cook, and aggregator business models are seeing huge tailwinds globally and in India. Zomato funding is a reflection of that,” K. Ganesh, a Bengaluru-based serial entrepreneur, and promoter of BigBasket, Portea Medical, and FreshMenu, tells Fortune India.
In April this year, Swiggy, similarly, raised $43 million from a clutch of investors, including Samsung Ventures, Ark Impact, Mirae, and others. In the following month it again raised $1.88 million as part of Series I funding from Samsung Venture Investment.
Ganesh points out that the pandemic has struck physical dining establishments hard, and they are suffering from reduced footfalls arising from fear in the consumer's psyche centering on social distancing and the risk perception of a potential infection. In contrast, contactless delivery, direct from a cloud kitchen of industrial grade standards with all precautions, have boosted online orders across food-delivery platforms.
“Reputed cloud kitchen brands which have very limited human contact in the entire journey from the stove to your table is the future of dining,” adds Ganesh.
The food tech space, especially online delivery, cloud kitchen, ready to eat, ready to cook, and aggregator business models are seeing huge tailwinds globally and in India. Zomato funding is a reflection of that.K. Ganesh, promoter of BigBasket, Portea Medical, and FreshMenu.
In 2018 Swiggy launched its own cloud kitchen, The Bowl Company, to tap into the growing online food market.
In the last two years, the intensity of competition has heightened in the online food-delivery business, which went through a rough phase in 2015-16, as deep-pocketed rivals, such as Swiggy and Zomato, managed to lure global investors to fund their businesses.
Flushed with funds, the food-tech players are now jostling for consumer mind space and wallet share. In a space where companies clone each other’s offerings in no time, focus on a clear delivery proposition is a key. Technology and back-end logistics has to work seamlessly for a good customer experience, an area which most of the food-delivery startups grapple with.
Industry experts believe there is room for multiple players to get started, but ultimately the consumer decides. With a wide range of services on offer, only a few will survive. Customers are not going to download multiple apps for food delivery.
While the endgame is still not clear, there’s surely a lot on the plate.