07 Jan 2019 20:25 IST

Right time for renewed foray into food delivery

High consumer demand and the synergies gained from the Foodpanda buy are positives for Ola

The case describes the various challenges that an aggregator (here, a food delivery service provider) faces in the intensely competitive business environment in India. The aggregator business model is unique, in that it caters to two customers — the supplier and the end consumer. The challenge for the aggregator is to provide value to both these customers, as both the suppliers of the service as well as the customers have other options in a hyper-competitive environment.

The case recounts that Ola (a cab aggregator) entered the food delivery service in 2015 by launching Ola Café. However, the attempt was unsuccessful, mainly because of the nascent stage of the business, which made it unviable; two, excessive focus on food delivery speed, leading to depleted product assortment; and, last, using Ola cab drivers for food delivery led to a marginally negative effect on the cab-sharing business.

Two years later, the company has re-entered into the food delivery business by acquiring Foodpanda, a major player in the food delivery market. The questions here are: (a) Was it the right decision for Ola to move away from its core competency (cab aggregator)? (b) Will the acquisition of Foodpanda help Ola successfully re-enter this business? And (c), what value proposition will help Ola-Foodpanda establish itself in a market dominated by Swiggy and Zomato?

The answers to these are evident while addressing the three questions posed by the case study.

1. Do you think this is the right time for Ola to re-enter the Indian food delivery market, after the recent debacle in that space?

We need to analyse the situation on two fronts: external environment and internal (firm-specific) environment.

The overall market conditions have certainly become favourable, with the big jump in the number of smartphone users, increase in the number of users using the internet on smartphones, and the growing number of nuclear families (especially dual-earner families) leading to higher disposable incomes and a decline in disposable time. Consumers are also becoming more adept at using technology to buy stuff, as is evident in the huge spurt in the number of orders received by food delivery service firms in 2017 compared to 2015.

Restaurants, too, are experiencing a rapid growth in business with larger numbers of consumers preferring to eat out. Consequently, they are also becoming more receptive to the concept of tying up with food delivery service providers. As the case states, many restaurants are even willing to forego a portion of their profits in order to increase their volume of sales through these service providers. The overall external environment has thus definitely matured from what it was in 2015.

The second aspect we need to look into is whether the acquisition of Foodpanda will bring the required synergy into the overall Ola service system. The answer is yes, as Foodpanda is already a major player in the food delivery market. According to the case, it fulfils 30,000 orders a day across 150 cities in India. So, it would help Ola to start afresh while re-entering this business. Foodpanda also has tie-ups with 15,000 restaurants and has its own logistics to deliver the food to end consumers. The case states that 50 per cent of food delivery by Foodpanda is done by its own delivery service.

All this will clearly help Ola overcome its earlier shortcoming of limited product assortment and negative impact on the cab sharing business, as also help it to maintain its promise of food delivery within a specified time limit. Foodpanda will allow Ola to broaden the array of services provided to its customers and bring them a seamless experience by integrating its app with that of Foodpanda. For example, the customer can order food through Foodpanda and pay through OlaMoney. Foodpanda has also seen its revenues grow, and has worked on making its logistics more efficient, which is evident from its losses being lower than its competitors.

Overall, both the external market conditions and internal conditions are likely to be favourable for Ola to enter this market. The food delivery market is experiencing consolidation right now, which means the market will become even more competitive in the coming years. Therefore, the situation may become more difficult for Ola if it does not enter the market now.

2. What steps would you take to succeed in a market in which it is difficult to survive, even for incumbents?

This depends on the goal Ola wants to achieve post the Foodpanda buy. The challenge that an aggregator business faces in this regard is that it has to work on two fronts simultaneously — supply side and demand side. If the supply is less than demand, it leads to consumers switching to competitors, whereas if the demand is less than supply, it results in supplier dissatisfaction. The short-term and long-term scenarios are important here.

In the short term, Ola will be better off focussing on maximizing customer acquisition. Here, the customer means both the restaurant as well as end consumers. End consumers are price-sensitive so they should be drawn in by lucrative offers in the form of deals, discounts, combo offers, cashbacks, and so on, to motivate them to order through Ola-Foodpanda rather than its competitors. However, the objective here is to gain economies of scale, which will subsequently reduce the company’s service costs. This can be achieved as Ola is planning invest an additional $200 million to expand the Foodpanda business.

The increase in the number of customers can be leveraged to motivate the restaurants to join the company’s service system and also benefit its other services — Ola Cabs and Ola Money. This will also help the company to provide the restaurants better business than its competitors. This will, in turn, attract more customers, and have a cyclical effect on the performance of Ola-Foodpanda.

The company can offer customers its existing services as value additions. For example, for food orders over a certain amount, a customer could get a discount on the next Ola ride. Or if the payment made is through Ola Money, a certain amount can be given as cashback in the Ola Money wallet, that can be used to order food. This will help the company maintain and expand its customer base.

Subsequently, Ola should try to establish a better connect with its customers by using digital marketing tools, such as social media marketing, targeted emails/sms/WhatsApp messages, and history-based personalised offers and suggestions. The end consumers will then view the company as customer-centric and this will go a long way in establishing a better customer relationship.

Ola-Foodpanda will have to make a genuine effort to include customers and restaurant owners as active participants in its service system and not merely passive recipients of a service. For this, it would help to set up a brand community where both end-consumers and restaurant owners may freely express their views about the service offered by Ola-Foodpanda and suggest improvements. This is critical, as focussing only on monetary incentives can be easily replicated by competitors like Swiggy and Zomato as they get additional rounds of funding.

3. What measures would you to take to differentiate the service and cater to Indian customer preferences?

This has largely to do with the value proposition of Ola-Foodpanda. The company has to clearly delineate its points of parity and points of difference. and balance the values it creates for both its sets of customers. For end consumers, the focus should be on providing a seamless, convenient service experience that is not restricted to providing payment options and doorstep delivery.

Consumers are more value-conscious nowadays, rather then just price-conscious. They may be willing to pay a premium for receiving certain services that will help Ola-Foodpanda effectively counter the deep monetary incentives offered by its competitors. Existing Ola services can be used to make the service experience of end consumer delightful.

On the restaurant front, the company has to build the loyalty of the restaurant owners to ensure that end consumer value can be delivered. Most restaurants are interested in increasing their volume of business, for which they are willing to give away a portion of their margins. Keeping this mind, the restaurants could be provided exclusive territories to serve. This will help them achieve their target volumes. If the restaurant deals in speciality food, then multiple restaurants can be roped in within a particular area.

The company could organise regular meetings of restaurant owners to apprise them of changes in clients’ food-preferences and help them improve their product range. In the long term, the company could also provide training to the restaurant staff, particularly chefs or cooks, in improving their service offerings to achieve its goal, thus enhancing mutual trust and commitment. Both the above measures (related to end-consumers and restaurants) are difficult to replicate and can prove to be a sustainable source of differentiation and competitive advantage for Ola-Foodpanda.

(The author is an Associate Professor, Marketing & Strategy Department, IBS Hyderabad.)