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How the lockdown worked up a big appetite for food delivery services

Forum Gandhi | Updated on November 20, 2020 Published on November 20, 2020

Premium takeaway: Five-star hotel chains like IHCL, Hyatt, ITC Hotels, and Marriott opened up their kitchens to home delivery   -  IMAGE: SPECIAL ARRANGEMENT

The fear of eating out during the pandemic has been accompanied by a huge demand for home delivery services. A host of players, old and new, are cashing in on this — from neighbourhood eateries and local snacks manufacturers to multi-brand restaurant operators, five-star hotels and cloud kitchens

* Twenty-seven per cent of those surveyed by American market analyst firm Nielsen in July this year used food delivery aggregators, compared to 19 per cent in the pre-Covid-19 period

* The cloud kitchen market registered a CAGR of 35 per cent in 2020, according to recent data from management consultancy firm RedSeer

* Indian food-tech aggregators secured the second-highest funding (nearly $193.55 million), behind US-based aggregators ($466.66 million) in the first two quarters of FY21, according to data from the venture capital industry tracker Tracxn

Imagine the rhythmic delight of Turkish music bouncing off mosaic-clad walls, under the warm glow of brass pendant lanterns on the ceiling. Now imagine the lingering aroma of freshly baked Turkish baklava, and all of this in the heart of Mumbai, too. Mesmerising? This immersive experience was the secret ingredient of Hurrem’s, a store-cum-café in Mumbai that opened in November 2019.

Little did Ahmed Farid, a co-founder of Hurrem’s, know that four months on, a nationwide lockdown would be announced due to the Covid-19 pandemic.

Farid and his team had to think on their feet to avoid going under — as diners, confined to their homes, could no longer come to Hurrem’s, the eatery decided to go to them.

Home delivery service became Hurrem’s bread-and-butter. The eatery’s strategy to stay relevant was three-fold: Tweak the size, the packaging, and the design of the products to adapt to changing needs.

“We went back to our drawing board — our best-selling baklava (Havuc) would be the size of a palm each, now we have made them available in a smaller sized take-home pack.” They then switched to durable packaging to ensure products reached customers in an oven-fresh state. They created a pack of assorted items as part of a gifting line for the festive season.

Mains and sides: The explosion in the food delivery segment has boosted investor interest in tech aggregators   -  BLOOMBERG/ DHIRAJ SINGH

 

Started in June, the delivery service doubled its revenues within a month.

‘Stay at home’ — the three-word global advisory put businesses across the board into a tailspin. But entrepreneurs like Farid in the multibillion-dollar hospitality industry found their derisk strategy in food delivery.

Of 1,750 consumers surveyed by American market analyst firm Nielsen in July this year, 27 per cent used food delivery aggregators, compared to 19 per cent in the pre-Covid-19 period.

Pack a punch: Apart from proving ideal in a time of social distancing, cloud kitchens have gained in popularity as they help save on rent and other costs   -  DHIRAJ SINGH/ BLOOMBERG

 

It was only a matter of time before more and more players jumped on the bandwagon — from neighbourhood restaurants, local snacks manufacturers and shops, and multi-brand restaurant operators to the so-called cloud kitchens, which are units that have no dine-in facility and only offer delivery service. From home chefs — who operate out of their kitchens on a small to medium scale— to the five-star hotel chains such as IHCL, Hyatt, ITC Hotels and Marriott, all of them opened up their kitchens to home delivery.

All of them stress that they follow strict protocols in adhering to hygiene and social distancing norms.

In a blog post, the founder of the food delivery service Zomato, Deepinder Goyal said: “More premium restaurants, i.e. restaurants where a meal for two may cost ₹1,500 and above, now opening up to online delivery, a larger number of affluent consumers are embracing online ordering. Overall spends on such premium restaurants have grown by over 25 per cent over pre-COVID levels.”

IHCL — the Tata group company that runs the Taj chain of hotels among other properties — launched an app called Qmin for its home delivery service. Its delivery revenue formed nearly 15 per cent of its food and beverages (F&B) revenue during the first two quarters of the financial year 2020-21 (April to September). InterGlobe Hotels — which has properties in India, Nepal and a few other Asia-Pacific regions — generated a revenue of ₹4.5 lakh last month from food delivery.

Accor Group’s Sofitel chain of hotels and resorts tapped the festival season and other social/family occasions to register a 132 per cent jump in home delivery orders on a month-on-month basis since May.

Safe to eat: The number of customers using food delivery services has increased significantly since the Covid-19 outbreak, a recent survey shows   -  THULASI KAKKAT

 

A few luxury hotels such as ITC Hotels and the Ritz-Carlton Bengaluru have come up with a ‘do it yourself’ (DIY) initiative, where the hotel home delivers all the ingredients, together with special recipe notes from the executive chef explaining the step-by-step method to prepare gourmet dishes at home. ITC also has an F&B app for its ‘Gourmet Couch’ delivery service.

For those missing their favourite fix from a high-end watering hole, multi-brand ventures such as Impresario Handmade Restaurants — which owns restaurant brands such as Social and Smoke House Deli among others — launched DIY cocktail kits.

Mandeep S Lamba, President (South Asia) of property consultancy HVS ANAROCK, believes the trend is here to stay. “Ancillary revenues are the new focus, and the hospitality industry realised that these initiatives not only help generate additional revenue but can also help them increase their clientèle.”

With dine-in impossible during the lockdown, single-brand and multi-brand restaurants were bleeding.

“For the first time, all our restaurants were closed and there was no revenue at all for many months. However, some costs continued and, as such, the months of lockdown led to large losses for our company as well as the whole F&B sector,” says AD Singh, founder and managing director at Olive Group, which operates over 15 restaurant and lounge brands including SodaBottleOpenerWala, Olive Bar & Kitchen and Guppy. The group’s delivery services, on the other hand, witnessed 30-40 per cent higher sales.

In the case of Impresario Handmade Restaurants, there was a whopping 300 per cent growth in its delivery segment compared to pre-Covid-19 levels.

Riyaaz Amlani, chief executive officer and MD of Impresario, is stepping up delivery through the company’s tech platform, while also working towards doubling capacity at its cloud kitchens.

In 2019, way before the world had any inkling of the pandemic and lockdown to come, the National Restaurant Association of India had observed in one of its reports that India had a huge appetite for cloud kitchens. Recent data from the management consultancy firm RedSeer stated that in 2020 the cloud kitchen market registered a compound annual growth rate (CAGR) of 35 per cent.

Apart from proving ideal in a time of social distancing, cloud kitchens have also gained in popularity as they help minimise costs, especially those of rent and wait staff.

Gaurav Gidwani, who has worked as an F&B director in the hospitality industry for the past two decades, co-founded a cloud kitchen called Indian Aroma in August this year.

“We knew that people weren’t going to get out [of their homes] so soon, and we saw that gap. We also realised there was a gap for a good Butter Chicken in Mumbai,” he quipped.

Spelling out the advantages of a cloud operation, he said: “The market opportunity is high, investment is low, and the model manages to offer ease in experimentation and scaling.”

Although Indian Aroma’s revenue has been fluctuating, it is seeing an increase in repeat customers and order values.

While Indian Aroma is a new entrant in the cloud kitchen segment, Karan Tanna’s Ghost Kitchens — started a year and a half ago — is a veteran in comparison, with 16 brands across four cities, all of which are seeing a 50 per cent rise in revenues week-on-week since July.

Tanna is also an incubator for home chefs and early-stage food delivery companies, and helps them with infrastructure support.

A communication professional by day, Mumbai-based Averil Gouria is also a home chef who goes by the brand name Aves Foodprints. She is using the delivery model to expand her offerings and operations to multiple cities. “As the pandemic grew deeper I added many food items to the menu, as I received a lot of inquiries,” she says.

Supriya Phulwani, a 35-year-old home chef who goes by the brand name of Moreish, also based in Mumbai, reinvented her business using the delivery model post the pandemic. She used to take corporate orders earlier and these dried up during the lockdown.

Her sister helped her revamp her social media presence and upload videos of the SOPs followed at her workplace. Phulwani also expanded her offerings to include sweets and other desserts, and Sunday menus for the festive season.

“Though people were scared to order at first, after we put out a video about the safety norms followed by our team, customers started to trust us,” she says.

She has seen a 100 per cent month-on-month increase in profit since May. “It was an ancillary revenue for us; plus, it was all in cash, unlike with corporates, where the credit system is often in use. Additionally, the instant feedback, personal contact and exposure are equally gratifying,” she adds.

The return of migrant workers to their hometowns during the lockdown is likely to create a third stream of revenue in the near future for home chefs like Phulwani.

“Since many of the chefs were migrants, and the taste consistency has gone for a toss, cloud kitchens have approached us [to stand in for the migrant chefs],” she explains.

Like Phulwani, Mumbai-based food delivery company Burgandy Box, too, relied on corporate clients for nearly 80 per cent of its revenues. Its products such as readymade gravies were targeted mainly for caterers, hoteliers, and corporate canteens.

Post the lockdown, Burgundy Box reworked its menus. Instead of salads, it offered ‘freezer-friendly’ meals such as pasta, biryanis, burger patties, basic gravies, sauces, curries, roti, bread, all of which have a longer shelf-life and work as the base for everyday home cooking.

“The idea was not just to provide ready-to-eat meals but also support customers in their everyday home life where they were struggling with daily meals in the absence of house help and limited supplies,” says Shabnam S Mehra, co-founder and director of the start-up Culinary Cart, which owns Burgundy Box.

Burgandy Box too started populating its social media pages with its SOPs, and this, Mehra says, inspired trust from retail customers. The retail business — despite a slowdown in volumes — increased by 100 to 150 per cent in revenues in just a couple of months.

“The figures are still lower than that of the last few years, overall, but higher than previous years’ B2C [retail customers] business volumes,” says Mehra. Shortage of delivery agents, however, made last-mile delivery challenging, she adds.

The choice of delivery agents differs for different companies. Some such as Hurrem’s, multi-brand restaurants and cloud kitchens use food-tech aggregators such as Swiggy and Zomato, which enable customers to discover local restaurants as also provide order support and fleet; others prefer hyperlocal delivery service apps such as Dunzo and WeFast. Some, like Phulwani, use their own delivery personnel.

The ones who benefited the most from the food delivery explosion, however, are the food-tech aggregators. Analysts at investment services company Goldman Sachs recently revised their estimates for the food delivery segment in India, projecting that they are likely to turn profitable earlier by a year.

Zomato, in fact, claimed that the food delivery sector has recovered to (and beyond) pre-Covid-19 levels in large pockets of the country. This month, it also stated that it has delivered over 12 crore orders since May. Its competitor, Swiggy has said it has seen a nearly 100 per cent growth to pre-Covid-19 levels.

Predictably, these developments have had the effect of attracting investor interest.

According to data from the venture capital industry tracker Tracxn, Indian food-tech aggregators secured the second-highest funding (nearly $193.55 million), behind US-based aggregators ($466.66 million) in the first two quarters of FY21. Indian aggregators succeeded in raising four rounds of funding, compared to six rounds by US aggregators.

In May this year, the food-tech platform Laalsa — which brings customers and restaurants under one umbrella and enables online food orders — raised seed funding of $1 million from Mergen IT and angel investor Anil Ramadugu. Swiggy, too, saw $1.88 million flow into its kitty from Samsung Venture Investment, to tide over the pandemic phase.

According to Traxcn, Zomato raised two rounds of funding — $24,566,600 and $166,102,000 — from Kora, Tiger Global Management, and Temasek.

Despite the flow of money, all is not that well for food tech aggregators. Amlani of Impresario Hospitality says that customers used to the deep discounts offered by food-tech aggregators in the past few years now miss that. Moreover, safety remains a concern, especially after images of delivery agents allegedly tampering with food packages were shared over social and other media some months ago.

“Technically, the situation of the pandemic is tailor-made for food-tech aggregators. However, with recent reports of tampering, customers now want to order from a local restaurant which they trust,” Amlani says.

Phulwani says the cost of delivering through aggregators was too high for her, so she would rather employ her own staff for delivery. Gidwani, too, echoed this reasoning.

Amlani is attempting to use technology to gain bigger visibility for his brands. “The discovery can be done through Google, as well. We do not see a reason to pay that many commissions to the aggregators.”

The commission system is dynamic and varies from restaurant to restaurant, as also the food-tech aggregator. It typically works out to 20-30 per cent of the total revenue.

At the other end of the spectrum, the delivery agents have their tale of woe. Even as they busied about, despite the pandemic, to ensure people stayed safe and fed, they felt short-changed as aggregators slashed their commission to cut costs. The delivery agents in several cities responded through protests. After all, it felt a bit like biting the hand that feeds...

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Published on November 20, 2020
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