22 November 2018 13:43:57 IST

Was the time right for Ola to re-enter the food delivery business?

How can the ride-share player differentiate its services and succeed amid strong competition?

In December 2017, India’s mobile app-based ride-sharing firm Ola made a re-entry into the food delivery space. It acquired the third largest player in the market — Foodpanda India (Foodpanda) — for around $50 million from Germany-based Delivery Hero Group. Furthermore, Ola planned to invest $200 million (₹1,330 crore) in expanding Foodpanda’s business — the largest funds infusion in an Indian food delivery company.

Ola’s founding partner, Pranay Jivrajka, became the interim CEO of Foodpanda and was supported by the existing leadership team at the food delivery business. The company, however, had no plan to bring the Foodpanda ordering app (available on both mobile and desktop) into the Ola app.

Earlier market exit

It was in March 2015 that Ola — the market leader in the Indian ride sharing space – had launched its food delivery feature called ‘Ola Café’ on its app in select Indian cities (Delhi, Mumbai, Bengaluru, and Hyderabad). Ola Café promised to deliver food from nearby restaurants in less than 20 minutes. At that time, the food delivery space in India was at a nascent stage with very few major players.

In June 2015, Ola launched its hyperlocal grocery delivery service, ‘Ola Store’ in three cities — Bengaluru, Hyderabad, and Gurgaon — through a separate app. Ola had partnered with popular retail chains in a particular neighborhood in order to provide the service. Both the services were expected to help Ola better utilize its driver network.

In March 2016, Ola exited both businesses — ‘Ola Café’ and ‘Ola Store’ — due to lack of viability and growth. Start-up ventures such as Ola Café found the Indian food delivery space a highly expensive proposition, causing several of them to close down. At that time, an average order was ₹300 and the delivery cost was around ₹50. However, food delivery companies charged around 10-15 per cent of the order value to popularise the service and grab market share. This meant that Ola Cafe lost money on most small value orders below ₹300.

Industry observers felt that Ola had also been unable to stand up to the rising competition in that space and had failed to effectively differentiate itself. While other companies offered to deliver the entire menu, Ola offered only a few items on the menu in order to fulfil its promise of the fastest delivery. There were certain reports which claimed that using drivers for food delivery slightly impacted the ride sharing services.

Re-entry strategy

When it re-entered the food delivery space, Ola claimed that it had learnt its lessons from the previous debacle. It stated that it was not starting off from scratch, but with a significant chunk of the market under its belt. According to industry analysts, Foodpanda fulfilled almost 30,000 orders a day in about 150 cities and worked with 15,000 restaurants.

Moreover, in fiscal 2016-17, the company had a revenue growth of 64 per cent and a fall in losses of 70 per cent. In addition, Foodpanda had put in place serious measures to bring down its operating costs and build a robust balance sheet.

Unlike rivals Zomato and Swiggy, which lost ₹1.5 on every rupee they earned in revenue, Foodpanda said it made a profit on every order fulfilled (as of end 2017) and was expected to be profitable in 2018-19 (see Table) . Foodpanda fulfilled nearly 50 per cent of its orders through its own delivery service.


After it was acquired, Foodpanda expected to benefit from Ola’s scale and efficiencies as a platform. Ola, on its part, expected to gain certain synergies from the acquisition, such as a substantial number of customers, apart from a considerable number of restaurants on board and brand recall value.

Transaction volumes

Ola claimed it had re-entered the market in a bid to diversify its services, apart from gaining a foothold in one of the most high-frequency consumer markets in India. Moreover, restaurants in India typically enjoyed a 40-60 per cent margin on every order and they were increasingly willing to part with a portion of this as commission to food delivery companies in return for increased business. Analysts observed that the food delivery business in India not only had ample order values, but also one of the highest frequency rates in terms of transaction volumes. Ola believed that those two metrics would enable it to record a large number of digital transactions.

Certain analysts thought that Ola needed to carve out a place for itself in the food delivery space as part of its natural evolution in the e-commerce ecosystem. A company insider stated that Ola eventually planned to become an integrated services network, wherein its wallet app — Ola Money — would be used for a host of services such as cab hailing, food-delivery, and grocery (re-entry planned in 2018).

Ola’s re-entry into food delivery happened at a time when analysts claimed that the restaurant business in India was seeing a resurgence after two years of dwindling business, following its rising maturity and increase in investments. In 2017, the number of orders a day was estimated to have reached 370,000, a jump of almost 130 per cent over 2016. The market also witnessed a series of consolidations, which led to the emergence of a few strong market players. According to analysts, the industry was expected to be worth $1 billion by 2018 and about $3.5 billion by 2021.

Future uncertain?

However, some industry observers were unsure whether Ola would be able to gain a significant position in the food delivery space through Foodpanda. Ola was set to face a fierce battle from strong incumbents such as Zomato and Swiggy, apart from newcomers such as its rival ride-hailing service Uber’s new venture, UberEats, and Google’s new venture, Aero.

While UberEats catered to about 10,000 orders a day in seven cities, Swiggy handled about 140,000 orders and Zomato about 100,000 orders — in a day! In addition to food delivery, Zomato also offered a restaurant listings platform, table reservation, and other services. By the first half of 2018, Zomato and Swiggy planned to raise fresh funds for further expansion.

Analysts said Ola would, through Foodpanda, be able to penetrate the Indian market better than UberEats as it had a better network than Uber, given its presence in even small cities, unlike Uber, which was present only in some cities. They observed that all successful online food delivery companies had focussed on a handful of regions, and there was wide scope for expansion in the market.

On the other hand, certain analysts said that in the food delivery space, getting just the logistics right was not enough; companies needed to innovate and understand the preferences of the price-sensitive and cash-dependent Indian customer. In such a scenario, can Ola succeed in making a place for itself in the growing food delivery space?

Questions for discussion:

If you were a manager at Ola,

1. Do you think this is the right time to make an entry into the Indian food delivery market, after a recent debacle in that space?

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

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

The last date to submit your analysis is midnight of December 23, 2018 . Each participating team should have not more than two members. Solo submissions are allowed. The top three teams will receive gift vouchers worth ₹12,500, ₹7,500 and ₹5,000 from leather goods company Hidesign. Please read detailed Rules of the Challenge on BL on Campus ' Case Studies page. Mail your entries to blcasestudies@thehindu.co.in

(Namratha is a Senior Research Associate at ICFAI Business School, Hyderabad, where Debapratim is a Dean. This case was compiled from published sources, and is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of a management situation. )