After being written off as a passing fad in 2016, the online food ordering business in India has proven itself resilient, with three of the largest players bagging big funding deals to help them grow and fight each other for supremacy in the foreseeable future.
On Thursday, the Bengaluru-based Swiggy announced that it had bagged $100 million (Rs 6.43 billion) in fresh funding from lead investor Naspers and Chinese online-to-offline platform for urban services Meituan-Dianping.
This is the second round of funding Swiggy has raised in eight months. While such funding rounds are typically in the pipeline for months, the announcement from Swiggy came less than a week after rival Zomato's leading investor, Info Edge, disclosed that the company had entered into an agreement with Alibaba's financial arm, Ant Financial, to raise $150 million (Rs 9.6 billion).
There was a secondary component in the Zomato deal as well where Ant Financial paid Info Edge $50 million (Rs 3.2 billion) to pick up an extra 6.7 per cent stake in the food ordering platform. It marked the end of a tough period for Zomato, which, in the past 18 months, had to scale down its global operations, scramble to grow its food ordering business and build a delivery fleet.
Anil Kumar, CEO of RedSeer Consulting, a firm that tracks Internet companies in India, said the renewed interest of investors in the space was indicative of the model of online food ordering being proven right. Moreover, he added, companies in this space had shown good growth - over 75 per cent in 2017 - while keeping a check on discounts to woo customers.
"It is a very exciting market and will undoubtedly keep growing at 70-100 per cent for the next two-three years, but companies will face a challenge in maintaining unit economics. This was something they were able to balance out last year, but is going to become a challenge now," Kumar said.
Apart from Swiggy and Zomato, the sector has seen the entry of cash-flush ride-hailing giants in the last year. While Uber is slowly rolling out its UberEATS offering across the country, Ola took a bigger plunge and acquired Foodpanda India, considered to be the ailing number three player in the food ordering space, in December. Globally, ride-hailing players have dipped their toes into online food ordering as both services essentially boil down to efficient logistics.
Ola, sounding the war cry, said it would invest $200 million (Rs 12.8 billion) in Foodpanda over the next few years to help it become the undisputed leader in the space. While each of these companies has denied that it would indulge in discounting to quickly grow its market share, experts point out that it was almost inevitable now.
Devangshu Dutta, chief executive of management consulting firm ThirdEyesight, said while these firms might burn money to market themselves, they could not lose sight of improving unit economics of every delivery. "I would like to think that there would be different behaviour (not burning money), but I cannot say for certain. Because if you are flush with cash, somebody or the other might make the call that they are in the market acquisition mode and let us embed our brand in the consumer's mind," he said.
Kumar, who estimates that the sector is valued at $750 million, said it was not too far-fetched to think that food ordering could be as large as ride-hailing in the next few years. "Food ordering is for everyone - the person owning a car and the person using the bus have access to the same restaurants. So the user base is much bigger," Kumar said. Dutta said online food ordering firms would need to grow beyond the current user base of young affluent users who have grown up ordering products online.