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The Food Tech Bubble

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twitter-logo Prosenjit Datta        Print Edition: December 6, 2015
The Food Tech Bubble
Business Today Editor Prosenjit Datta

Readers of a certain age who are interested in dining out would remember the time, barely half a decade ago, when they waited eagerly for the annual restaurant/eating out directories brought out by big newspapers in every city. Delhi had two prominent volumes - the Times Food Guide and the HT City Eating Out Guide. Similar volumes were found in almost all cities. They contained restaurant/takeaway listing, expert snapshots by the newspaper's food columnists, and some useful information like average price for a meal for two, etc.

These directories were fairly popular even a few years ago. But today, few people I know use them anymore. Most depend on Zomato, Foodpanda or other food tech start-ups that provide the information digitally, and often even help in ordering and delivering the food. Some offer good discounts if the food is ordered through their platform. The annual printed guides business used to be nice while it lasted, but most newspapers did not see the shift to digital listings much the way most of them also missed the fact that classifieds were moving to the Net. By the time they woke up, food tech entrepreneurs had taken the lead.

Zomato, which is the most prominent of the food start-ups, was not the pioneer, though. I think a site called Burrp was actually the first off the block, but it lost its way. Zomato, which secured good funding from investors, went on an expansion spree, picking up similar food listing start-ups around the world. It did nine acquisitions in 2014/15.

Foodpanda, backed by Rocket Internet, had a different model in the sense that it started off with a delivery model instead of a listing model รก la Zomato. And while it was slower to grow in India than Zomato, Foodpanda is a pretty serious player around the world.

Several other entrepreneurs also identified the food tech space as the big new opportunity. The food services market in India is expected to reach a size of $78 billion by 2018, and the sheer size of the opportunity means at least a couple of players can hit pay dirt. Meanwhile, angel investors and venture capitalists, who missed out on investing in Zomato, backed other entrepreneurs with same or similar ideas. At last count, an estimated hundred food start-ups were operating in the country.

Over the last few weeks, stories of problems cropping up in the sector have been coming out almost every day. Zomato had to lay off 300 people and may be sacking a few more soon. TinyOwl, another start-up, had to scale back operations in four cities. Foodpanda itself has seen a management churn. Lots of other start-ups in the space have closed down. Investors, too, are getting jittery.

In a way, the problems of the food tech start-up space is just an early warning sign of what is likely to happen in many other e-commerce segments. Easy money allowed a lot of half-baked start-ups to kick off. Young entrepreneurs fuelled by enthusiasm did not do proper cash flow or market competition analysis before going on expansion spree. When they burnt through their initial cash, they were often left with no option but to close down.

Senior Editor Goutam Das looks at how the bubble is bursting in the food tech space in our cover story on page 52. The food tech industry and the diamond industry might seem to have nothing in common. But in both cases, the troubles started because the players became too ambitious. Senior Assistant Editor Sarika Malhotra travelled to Surat and Mumbai to bring out the inside story of the biggest downturn in the Indian diamond industry. It is on page 68.

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