Food-tech expansion is the challenge and if one is not having gross margin of 50 per cent he/she is not going to make money.
Year 2015 can be crowned as the shining period of food-tech start-ups in the country. From aggregators to subscription based model, fresh delivery business, healthy food sites and online booking to reservations sites, all saw great cash flows coming from the investors. But as 2016 is making its way ahead, the industry doesn’t seems to be doing good when it comes to continuing the same growth propaganda with which it was started.
The markdown of food-tech leader like Zomato could be topped as the downfall of food-tech business in India. However, this would not leave an earth shattering impact on the food-tech industry as the industry is already facing dearth of cash flows and business from quite some time. From merging two businesses to one, shutting the doors and vanishing from the scene, closing of business in expanded cities, these start-ups are facing blood bath.
Since, most of the food-tech players entering the business are thinking that the space could be a sure shot for them because food is one commodity which is never going to die in any country, few of them have worn out because of their greediness for short term expansion and quick moves.
Talking to experts, Restaurant India found that there are five major reasons that is creating a deficiency of growth in the fast evolving food-tech sector:
“I was approached earlier this week by the founder of a food delivery start-up who asked me if we were interested in participating in a funding round, after a potential investor removed their support. We declined,” Brett Stevens, Vice President, Jaarvis Accelerator shared.
“Food tech has been seeing challenges including lack of new funding, failures and consolidation and more of that will continue. However, the primary challenge to me has been inability to scale and lack of focus on unit economics,” said, Ash Lilani, Cofounder and Managing Partner of Saama Capital.
Adding his view on the ongoing scenario, Mohan Kumar, Partner at Norwest Venture Partners which has invested in Swiggy, pointed, “This (Zomato’s markdown) is not a reflection of food tech space, the opportunity is still there for a team with the right business model and ability to execute.”
And, hence we can say that most of these businesses that started presumed that the scale will become so large and half the target population will order through online or app, which is not happening. But the result is going in a backward direction where people today are ordering directly from restaurants and those who are ordering from app or their sites are only for discounts. And, once the discount is over the order rates goes down, so according to the experts in the industry food-tech expansion is the challenge and if one is not having gross margin of 50 per cent he/she is not going to make money. Even, if one is working on 15-20 per cent gross margin they are not going to make money. There is no future for such business.