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Food Delivery in India and the Drivers Behind its Growth

Food Delivery

Food Delivery in India:

Almost every outstation college student has faced a food crisis one time or another. From attending a 10 a.m. lecture with an empty stomach to not having anything to eat on a Friday night, we have all turned to Swiggy or Zomato. The food delivery industry in India is currently valued at around US $ 2.7 billion and the market volume is expected to grow at around 10% this year. It’s almost unsettling how a sector which was devoid of any funding just two years ago has managed to thrive as a viable business, by filling broke, 19 year old bellies. As obvious as it might sound; it all boils down to our beloved forces of demand and supply. Before we analyze the dynamics behind this growth, a basic understanding of the composition of the food delivery sector is imperative.

Cloud kitchen model and restaurant aggregator model are the two major segments in this business. Any outlet which functions primarily for the purpose of food delivery falls under the cloud kitchen model. Notable examples of cloud kitchens include Faasos and FreshMenu. A restaurant aggregator acts as a vendor between customers. Cloud kitchens or traditional dine out restaurants which also deliver food online. Notable examples of the same include startups like Swiggy and Zomato. Cloud kitchens are different than other outlets. They have their own platform for their services, apart from tie-ups with major aggregators. Over the last few years, the cloud kitchen business has seen tremendous growth; thanks to the reduction of irrational marketing and real estate costs

along with the recent unrest in telecom industry. Getting to the inherent point of the article, the following factors have influenced the food delivery sector in recent years:

 

DEMAND DYNAMICS

Perhaps one of the most important reasons driving this growth is the country’s current stage of demographic transition. Almost half of India’s population falls under the age group of below 25 years;this roughly equals to about 500 million people. The target demographic of most aggregators consists of a generation of millennials who are perfectly capable of taking decisions independently. They tend to spend lavishly on things they don’t need and have spent their lives trying to reduce their workload as much as possible.

Meanwhile, there has also been an increase in the amount of people being productively employed in lucrative industries. This has  lead to an increase in the per capita income. Most of these people have enough on their plate already. From doing double shifts to cover another employee, to commuting for three to four hours in a single day; private sector employees living in metro cities do not really have the time to pick up okra on their way home. There has been rise in number of working women and both the parents earning for the family now.Nuclear families are forced to rely more on takeout restaurants to save time and energy that would have otherwise been utilized into cooking a meal on their own.

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SUPPLY DYNAMICS

Probably the more significant set of reasons, the recent changes in the business model of food and beverage industry has had more to do with their growth. As mentioned earlier, the investment in delivery dedicated formats has reduced the initial capital expenses a lot. These formats only have to rely on basic kitchen equipment and cooking staff which saves them the trouble of spending more on real estate, interiors and of course labor wages. This also allows them to focus more on the food rather than the ambiance or customer relations. Even traditional restaurants have started taking food delivery more seriously to retain their customer loyalty.

Mobile applications and websites have also had an overwhelming impact. This is due to increasing number of people using Smartphones and easy access to internet. Zomato, Foodpanda and Swiggy are the most prominent aggregators in the business. Their primary source of revenue is the commission they charge on each order apart from advertising on their platforms.With aggregators like Foodpanda considering the cloud kitchen mode a more viable business proposition, investors are more willing to place their bets on them.

The astonishing growth of the food delivery industry is a result of the constantly changing urban lifestyle coupled with the evolution of business models to suit the former. Aggregators have realized the importance of customer satisfaction. They will do anything from introducing nasty promo codes to making their platforms essentially a social network in order to suit their purposes. Businesses, who keep this in mind, will get the biggest share of the economic pie

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