Food-Tech in India

Food - Tech in India by Sam Ghosh 15th April 2020

Why talk about Food - Tech?
Why talk about this? Demand Side Supply Side Impact of COVID-19Policy

● Technopak - The Indian food services market was expected to grow at
CAGR 10% from Rs. 3,37,500 crore (~$48 billion USD) to Rs. 5,52,000
crore (~$79 billion) during 2017-2022.
○ Currently the industry turnover is around ~Rs. 400,000 crore.
○ USD figures are calculated assuming 1 USD = 70 INR.
● The COVID-19 pandemic may structurally change the industry with the
change of consumer preferences.
● Some food-tech companies may face significant hurdles whereas some
may benefit from this shift in the long-term.

Demand Side

Food Services Market
● Technopak The total market was at INR 3,37,500 crore (~$48 billion USD) in 2017.
● Was expected to grow at CAGR 10% to INR 5,52,000 crore (~$79 billion USD) by 2022.
Data: The World Bank
Demand DriversFood-Tech MarketFood-Services Market

Food-Tech Market
● Google/BCG - Indian Food-Tech market was expected to grow at CAGR 25%-30% from USD $3.5-$4 billion
in 2019 to USD $7.5-$8 billion in 2022.
● Ordering frequency was expected to grow by 18-20% even as average order values may soften by 5-10%.
● Digital penetration in the Food Services market is very low in India.
Data: Google/BCG
Online Food Service as % of Food Service spend

Demand Driver - Rapid Urbanisation
● India is experiencing rapid urbanisation.
● Share of urban population is expected to rise from 31% in 2010 to 35% in 2020, 40% in 2030 and 53%
in 2050.
● The urban population is expected to be ~480 million in 2020, ~600 million by 2030, ~740 million by
2040 and ~860 million by 2050.
Data: The World Bank

Demand Driver - Rising Incomes
● PWC - India will remain one of the the fastest-growing economy until 2050.
● Growing per capita income means growing affordability.
● McKinsey - roughly 60 million households could enter the consuming class (defined as households with
incomes greater than $8,000 per annum) by 2025.
Projection: PWC
Socioeconomic Backdrop Demand Side Supply Side TrendsPolicy

Demand Driver - Disposable Income Growth
Data: RBI
GDP: Gross Domestic Product
GNI: Gross National Income
NNI: Net National Income
GNDI: Gross National Disposable Income

Demand Driver - Rising Household Consumption
Data: World Bank

Demand Driver - Growing spending on food and food services
Data: MOSPI

Data: Bain and Company
Food and Grocery is the least penetrated segment in ecommerce

Demand Driver - Large and growing internet user-base
● Total Internet users as of September 2019 as per TRAI - 687.62 million.
Data: RedSeer

Data: TRAI as of September 2019
● techARC - India had 502.2 million smartphone users by the end of 2019.

Demand Driver - Rapidly Growing Online Spending
Data: RBI Payment System Indicators

Supply Side

PlayersSegments Progress
Food Delivery
Aggregator
Cloud Kitchen Online Table Reservation
Food Delivery Aggregators help
connect the buyers with the
restaurants, book orders for the
restaurants and provide delivery to the
buyers. In simple words, they provide
listing, order-booking and delivery
services to the restaurants and collect
a fee from them.
This is an asset-light model and can
be compared to the marketplace
model of ecommerce.
Ex. Swiggy, foodpanda, and Uber
Eats, etc.
Also known as Digital Restaurants
or Online Restaurants, Cloud
Kitchens are restaurants that offer
online order booking and
home-delivery without dine-in
facilities.
Although, less capital intensive
than traditional restaurants partially
removing the importance of
restaurant location, Cloud Kitchens
are more capital intensive than
Delivery Aggregators.
Ex. curefit, Faasos, Freshmenu ,
and Box8 etc.
Online listing and table booking
services for restaurants.
Ex. eazydiner, Dineout, and Zomato
Book etc.
Segments
Others
Niche beverage retail chains such
as Chaayos and Chai Point use
extensive technology for order
booking and management.
Rewards and cash-back platforms
such as Magic Pin.
Ex. Chaayos, Chai Point, and Magic
Pin etc.

PlayersSegments Progress
Notable Companies
(Source: Tracxn)
● Swiggy: Founded in 2014 and with USD $1.6 billion of funding, Swiggy delivers food and desserts from restaurants to
customers under 40 minutes. Its smartphone-equipped delivery personnel provides deliveries to customers through an app
powered by routing algorithms. Swiggy claims to have 60% revenue market share in the food delivery market in India.
● Zomato: Founded in 2008 and with USD $900 million of funding, Zomato is an online and mobile app-based platform for
restaurant discovery, ordering, and table booking. The company claims to have partnered with a million restaurants across 22
countries including India, UAE, UK, South Africa, Qatar, Sri Lanka, Turkey, Brazil, Indonesia, New Zealand, and the
Philippines.
● cure.fit: Founded in 2016 and with USD $400 million of funding, cure.fit is an integrated health and fitness platform focusing
on preventive healthcare space that enables users to manage their health proactively through various service offerings.
Cure.fit offers healthy food deliveries from cloud kitchens.
● Box8: Founded in 2011 and with USD $26.7 million of funding, Box8 (rebranded from Poncho.in, which previously was serving
Mexican dishes in the quick service format) is an Indian quick-service restaurant chain with outlets across Mumbai. Provides
an online platform that allows users to browse through various product menus and place an order for door delivery.
● Magic Pin: Founded in 2015 and with USD $30.3 million of funding, MagicPin is a rewards and cashback platform for diners.
Diners can earn cashback if they dine in a partner restaurant of Magic Pin by uploading a photo of the bill along with a selfie
with the dish. Thus the app enables discovery through deals/discounts.

PlayersBusiness Models Progress
Data: Google/BCG
Growth of food-tech apps

PlayersBusiness Models Progress
Data: Google/BCG
Funding

Policy

Antitrust IssuesFood Safety
Food Safety
● In India, the Food Safety and Standards Authority of India (FSSAI) implements and Enforces regulation on Food
Businesses prescribed in the Food Safety and Standards Act 2006.
○ Section 3(n) defines Food Business as
“any undertaking, whether for profit or not and whether public or private, carrying out any of the
activities related to any stage of manufacture, processing, packaging, storage, transportation,
distribution of food, import and includes food services, catering services, sale of food or food
ingredients”
● Food Safety and Standards (Licensing and Registration of Food Business) Amendment Regulations, 2018 takes the
food-tech companies under the purview of the Food Safety and Standards Act.
○ Defines e-commerce Food Business Operator (FBO) as
“any Food Business Operator carrying out any of the activities in Section 3(n) of Food Safety & Standards
Act, 2006, through the medium of e-commerce.”
○ E-commerce FBO’s need to obtain registration and license from the authorities.
○ E-commerce entities providing listing/directory of FBO/food products may not be required to obtain
license/registration.
○ E-commerce FBO’s need to make sure that sellers/brand owners/manufacturers are compliant of the Food Safety
Act.
○ E-commerce FBO’s need to ensure the quality of the food, authenticity of the presentation and capability of the
delivery personnel.

Antitrust Issues
● In December 2018, Kerala Hotels and Restaurants Association (KHRA) launched strike against the food delivery
companies.
● They accused the food delivery companies of abusing their dominant position in the market with deep- discounting, in-
house kitchens and internal sourcing.
● Nearly 500 restaurants filed online petition to the Competition Commission of India (CCI) and the PMO alleging the
food-tech companies of misusing their dominant position.
● The Department for Promotion of Industry and Internal Trade (DPIIT) called Swiggy, Zomato, Foodpanda and Uber Eats
for a meeting.
● CCI called the National Restaurant Association on India (NRAI) to seek recommendation on ecommerce policy.
● CCI started a study into whole ecommerce sector including food-tech in April 2019 to understand the market and
competition.
● A report was released titled ‘Market Study on E-commerce in India: Key Findings and Observations’ in January 2020.

Antitrust Issues
● The report notes -
○ Platform Neutrality
“The concern regarding platform neutrality emanates from situations where the online platforms serve as both a marketplace and a
competitor on that marketplace. Platforms essentially vertically integrate when they operate in the products traded on it, which may be
through manufacturing/selling of private labels or by having direct or indirect interest in retail or through operating their own cloud kitchen
brands.….Whether leveraging through preferential treatment of the platform’s own or related entities would be a profitable business
strategy for the platform and the effect that such a strategy is likely to have on competition would depend inter alia on the nature of the
market that the platform operates in, market power of the platform. Notwithstanding the above, it is observed that lack of transparency in
the platforms’ functioning and practices can on the one hand allow for possible distortion of competition on the platforms and on the
other hand, consumer choice may not reflect consumer preference with perfect information. The three elements, which according to the
business users of the platforms, are susceptible to manipulation/exploitation by platforms, are search results, sellers’/service providers’
data and user review/rating mechanisms...Sellers’/service providers’ access to customers on platforms depends inter alia on the sellers’
ranking on the platform’s website in response to related search queries. Organic search ranking is generated by search algorithm of the
Platform and thus the platform is in control of the search parameters and results. The dual role of the platform gives rise to the concern
of ranking biases that may be created by the platform as a discriminatory device. Lack of transparency vis-à-vis the search ranking
criteria was also raised as an issue generally which made a section of respondent service providers believe that the commissions paid by
them influenced their search ranking and thus the so called organic listing on platforms also effectively amounted to paid listing.”
○ Platform-to-business Contract Terms
“A fragmented supply side and only a few major intermediary platforms create a situation of asymmetry of bargaining power. As the study
reveals, this bargaining power imbalance and information asymmetry between platforms and their business users may be prejudicial to
the interest of business users...The issues of unilateral revision in contract terms and imposition of ‘unfair’ contract terms by the major
platforms have led to growing unease and tension in platform-business relations. Such an environment of conflict and mistrust may not
be conducive for realizing the full potential of digital commerce, which promises myriad benefits to consumers, businesses and the
economy.”

Antitrust Issues…….
○ Platform Parity Clauses
“A review of the antitrust literature on price parity clauses shows that these restrictions can give rise to competition concerns.
Firstly, existing platforms, in the presence of parity clauses, may not have sufficient incentive to compete on commission rates.
Secondly, a new platform could charge lower commissions to service providers that offered a discounted rate, in order to gain a toehold
in a concentrated oligopolistic market where incumbent platforms enjoy scale economies and network effects. Platform parity clauses
imposed by incumbent platforms may serve as a barrier to entry by such low-cost platforms.
Thirdly, these clauses can also help cement coordination or tacit understanding that may exist between platforms, by disincentivising
deviation from a consensus rate of commission. Thus, platform parity clauses can potentially lead to higher commission rates and
discourage entry.”
○ Exclusive Agreements
“Exclusive agreements are not per se anti-competitive. However, they raise potential competition concern when used as an exclusionary
tactic to foreclose competition to rivals or to impede entry...Exclusive agreements may make rival platforms incur significant additional
cost to induce the brands/service providers to give up the exclusive contract with the major platform.”
○ Deep Discounts
“..Ediscounts can harm competition when used as an exclusionary device by enterprises with market power...The concern raised by
sellers/service providers with respect to discounts offered on/by marketplace platforms is threefold -
i) discounts are discriminatory
ii) discounts imposed by platforms in exercise of their superior bargaining power adversely affects the business models of the service
providers
iii) discounts push prices to below-cost levels in certain product categories and impair the offline small retailers’ ability to compete.”

Impact of COVID-19

Short - Term Long - Term
Short term impact on Food Services Industry
“The sector is fighting a grim battle for its survival,....
we are staring at almost zero revenue in the immediate term
and at least a drop of 50% for months thereafter.”
- Anurag Katriar
President of NRAI
● The Indian restaurant industry is struggling for survival.
● The National Restaurant Association of India (NRAI) requested the
property owners for waiver of rent and proposed a revenue-sharing
model after the lockdown.
Short term impact on Food - Tech
● 26th March 2020: Delivery companies experienced 60% drop in their order volumes.
○ Supply side issues - many high demand restaurants are closed and many workers are unwilling to step out.
○ Confusion about the essentiality of the delivery services with the authorities.
○ Delivery companies started offering “contactless delivery”.
Source: KPMG Report

Long term impact on Food Services Industry
● A Nielsen study across 74 markets, indicates that consumers in
Chinese mainland, Hong Kong, South Korea, Malaysia and
Vietnam are rethinking and re-prioritising eating at home.
● A shift away from out-of-home dining to at-home food delivery,
takeaways and cooking is seen.
● Health and hygiene likely to become priority.
● Supply Side : India witnessed an exodus of migrant workers from
urban to rural India. Labour shortage is already felt by the online
grocers who are operational during the lockdown. The food
services industry may face persistent labour shortage once they
commence operations. This along with the damaged supply chain
of agricultural products may create a roadblock for the industry.
“Consumer thinking and actions have
been reoriented, and this will have
long-term consequences. For many, old
habits like eating out may forever be
replaced by new habits, more apt to new,
altered environments. Not only will
consumers reassess where they’re eating,
but they will also be far more cognizant of
what they’re eating.”
- Vaughan Ryan
Managing Director Southeast Asia, Nielsen

Long term impact on Food - Tech Industry
● Although, home cooking is the favourite now - in the long-term
when life comes back to pre-pandemic pace, a long-term shift
from dining-out to home delivery is likely.
● As supply side constraints likely to force many restaurants to
close shops, delivery and booking services may face persistent
supply issues. Cloud-kitchens, on the other hand, may benefit
immensely from the shift.
● Healthy and hygienic options may get higher priority over cheaper
options - food-tech companies may need to change their
marketing strategy for future growth.
“..Singapore as a country that already
embraces home delivery of meals and
Japan as one that has been less inclined,
we’re seeing many more countries move
closer to Singaporean habits than before”
- Vaughan Ryan
Managing Director Southeast Asia, Nielsen

Thank You

Food-Tech in India

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