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Food Techs Are Running Dry: Here's How to Change That

Food Techs Are Running Dry: Here's How to Change That
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Food technology startups seemed like the sweet bubble in Indian entrepreneurship dreams that would seemingly never pop. One after the other a new start-up was launching every single day, running the exact same business model, serving the exact same food, using the exact same resources and delivery methods and the exact same locations – what could possibly go wrong? Until one fine day, the bubble finally popped and one after the other, startups finally started running out of funding. Dozens of startups were unable to even give salaries to their employees, rendering countless dedicated staff jobless.

Vikram Upadhyaya, Chief Mentor & Accelerator Evangelist at GHV Accelerator said, "Food tech startups in India are failing to keep afloat because of two basic reasons: one, there are too many 'me-too's and no clear differentiators, and two, a clear lack in expertise along with the absence of a timely 'need' analysis. To crack this space, expertise is required on three accounts: food - as a core product; processes - as a medium of standardisation and scalability; and technology - for convenience, customer service and scalability."

Customers that were cashing in on deals that refused to make economic sense for any business to run, while startups hoped that they would make a huge customer base that is loyal enough to stick around. Turns out, they were wrong. Customers seem to not stay loyal to one food startup at all, and jumped between one establishment to another just because, well, they can – and newer startups often came with more ridiculous discount. There’s something wrong here. Just look at last year’s trends:

  • Foodpanda reportedly was looking for a buyer desperately, but despite its “low” price is unable to meet buyers.
  • The CEO of Zomato remarked 2015 was truly a “year of learning”.
  • Delyver was acquired by BigBasket
  • SpoonJoy was acquired by Grofers
  • JustEatin: Acquired by FoodPanda 

In order to control the costs, sustain investor’s interest and keep customer databases growing, some are shutting down their outreach, others are pausing operations while some others are reducing staff count. "Some of the large food tech companies which are backed by global investors are facing deep trouble due to weak revenue model, lack of innovation & flawed systematic operations. With the motto to woo customers,companies started offering unviable discounts which severely made the businesses suffer. Excessive supply of mee-too food tech apps have forced some food tech companies like Dazo, Langhar to shut down their shops. Unsustainable operations have led big names like Tiny Owl, Zomato, Foodpanda to let go huge chunk of employees. Also, heavy market correction is witnessed in the food tech sector. Some possible ways to keep them going can be through buyout or acquisitions", said Dr Apoorv Ranjan Sharma, Co-Founder and President of Venture Catalysts.

The simple theory of all startup failures, using funding to bulk customer databases while enticing them on heavy discounts paying no head to maintaining the same database and then recycling through this same process over and over applies here as well, but that’s not the only reason. Here are some of the reasons food start-ups are failing:

Be sure you can walk the talk

Inflating orders can be easy. It’s food – and everyone loves food. Your customer base can be huge and is easily expandable despite the enormous competition in the industry. It’s easy to reach 100+ orders a day, but remember you’re just an intermediately in the food delivery setup, so the orders better have the resources to effectively deliver the actual food on time to consumers. This where most start-ups fail. Be sure that the restaurants have the capacity to back this huge order account including delivery.

Focus on retailing more than expansion

The fatal flaw most Indian start-ups, not just related to the food-tech sector fail is because they cannot retain their customer database. If the quality, delivery and prices are good, customers like the idea of familiarity and the comfort of food delivery. Focus more on keeping existing customers happy and they will automatically spread the word.

Focus on the food

Most Indian startups don’t effectively focus on the food as much as they should. Instead of launching more promotional codes, pushing newer updates and designing the website more effectively, more focus should be on the food itself. Your start-up is essentially run on the efficiency of the chef using ten minutes to cook properly. If the food tastes good, the customer won’t care if your app crashes or that the website doesn’t have enough flashy styles. He will be back.

Don’t issue promotions that aren’t feasible

Instead of using your funding to give unreasonable discounts, such as 60% off or even more, why not utilize that funding to improve the food quality and quantity instead? Customers would appreciate a dish that costs 100 rupees but is good for more than one meal instead of ordering two dishes for 150 rupees. Reasonable promotions set believable standards for the future and help retain customers.

Get something new going

Understand your market – you’re trying to enter a market which every human being on this planet necessarily uses. Customers already have their favorite restaurants and their favorite dishes. You’re battling years or even decades of an established customer database. Try to introduce new innovative options for customers to choose from. There are several ways to provide different options to customers instead of just multiple cuisines, such as kosher grade food, adding halal options, slow cooked meats, vegan options, whole wheat, gluten-free, sugar free, natural, organic or GMO free, fat free, variable spice strengths, ability to customize your order etc are all viable options that are lacking in majority of budget Indian food options.

Which is your personal favorite food tech start-up and why do you prefer it so? Let us know in the comments on our official Facebook page Entrepreneur India

Edition: October 2016

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