07 Jan 2019 20:27 IST

Time to foray into cloud kitchens

This will provide higher margins as compared to delivering food from third party restaurants

Right time to enter the industry

Industry potential

- The total online orders increased from 8 per cent in 2011 to 42 per cent in 2017.

Mohit Singhania

Anvi Gupta

- Revenue in the platform-to-consumer delivery segment is expected to show 25.2 per cent CAGR (2018-2023)

- Platform-to-consumer delivery accounts for just 19 per cent of total revenue within the online food delivery segment. User penetration was 2.1 per cent in 2018 and is expected to hit 4.8 per cent by 2023.

 

Growth drivers

Some 337 million people own a smartphone in India, and this is increasing by 16 per cent y-o-y. Rural internet penetration has grown from 18 per cent to 20.26 per cent in one year. The rise in youth population and working women are major drivers — 78 per cent of total users are 18-34 years old and labour force participation rate for women has increased to 28.5 per cent in 2017.

Right time specifically for Ola

1. Synergies with existing business

- User base - Ola’s growth of unique online users has been stagnant for the past two years. Foodpanda claims to have access to over 150 million customers.

- Ola Money - Ola plans to become an integrated services network, where its wallet app will be used for a host of services such as cab hailing, food delivery, buying grocery and so on.

- Better utilisation of existing logistics network - Ola may be able to utilise Ola Bikes and Ola Pedal services to make food deliveries.

2. Benefits of entry through acquisition

Instead of starting from scratch. Ola Cafe couldn’t maintain partnership with restaurants but Foodpanda brings along a network of over 1 lakh delivery partners.

3. Parity with competitors

Ola followed Uber to ensure that Uber doesn’t become a one-stop solution for all customer needs.

Targeting the right segment

- Low order value segment in metro cities - the average ₹300 order value segment is over-crowded. Foodpanda should target low-ticket meals of ₹80-100 per customer. No restaurant on Foodpanda’s platform can supply that so the company should expand in to the cloud kitchen space. Low prices will translate to higher volumes.

- Non-metro cities - Big players dominate metros. Ola should tap Tier 2 and 3 cities. Ola’s existing presence in 100 cities will give it an edge in expansion. According to research, smaller cities contribute 40 per cent to Foodpanda’s business in India. Foodpanda understands the behaviour of these customers and has experience in the logistics.

Establishing a captive user base

- Monthly packs - User will be charged a one-time fee against which they can place a fixed number of orders any time in a month. A different food item can be ordered each time but it needs to be chosen from a pre-decided menu. This will ensure repeat orders and predictability of revenues. Packs can have three different price levels.

- Innovative marketing - Ola can enter into exclusive contracts with Instagram influencers and food bloggers. When a user views a food post and wishes to consume the same, they can click on a link in the post’s caption that will direct people to the same food item from the same restaurant on Foodpanda’s app. If the restaurant is within customer’s radius, they can place an order. Otherwise, the app will enlist similar food items from nearby restaurants.

According to research, 92 per cent of consumers trust food recommendations from others, even individuals they don’t know, over branded content. In India, there are 35 million active Instagram users. Of those, 71 per cent are 18-34 years old, which perfectly coincides with the online food delivery main market. And 74 per cent of consumers identify word-of-mouth as a key influencer in their purchasing decision. In 2016, #nomnom was used on Instagram nearly 10.3 million times.

- Help customers establish personal connect with restaurants - Foodpanda can provide details about the hygiene of kitchens, use of healthy ingredients, socially responsible practices such as employing differently-abled staff, qualifications of chefs and so on. Foodpanda can charge an advertising fee from restaurants.

In conclusion

In addition to the points listed above, Ola can take the following steps to address two main preferences of Indian customers:

1. Low prices - Foodpanda should foray into the cloud kitchen. It leads to higher margins (35-40 per cent) as compared to delivering food of third party restaurants. The benefit can be passed on to customers as low prices.

2. Cash dependency (COD) - The first challenge is in ensuring that the customer accepts the order and pays. For this, Foodpanda can introduce a system where delivery executives rate customer behaviour. Customers with below average rating will be blacklisted. The second challenge is to arrange exact change. For this, Ola can provide printed coupons to delivery executives. Say the executive doesn’t have ₹13, he can instead give a ₹13 Ola money coupon (similar to Sodexo money) that can be used to purchase goods of a higher value (say ₹20) at all Ola partner outlets. This measure aligns with Ola’s strategy of popularising its wallet services.

(The second runners-up are in their second year of PGP at IIM Bangalore.)

 

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