Online Food Delivery Industry Analysis
- Yash Mehta
- May 2, 2021
- 5 min read
We all know that Zomato had filed for its Initial Public Offering (IPO) in Indian Equity Market. Its second largest food delivery company in India and we have planned to cover Online Food Delivery Industry Analysis for our readers in this blog. It will help our readers in understanding the business, key growth drivers, SWOT analysis, top two companies (Swiggy and Zomato) financial statement analysis and Key Performance Indicator (KPI).
Restaurants are now trying to maximize their business output by offering food delivery services. This way they all are able to rationalize existing fixed costs and also keep their business sustainable. Home Delivery is a very vital ingredient in this mix. It’s no wonder restaurants big and small, all are vying to get a piece of this pie! Moreover, with this format, a higher number of customers can be serviced, compared to the sit-and-dine format where at peak hours, customers will be missed. The delivery format keeps customer loyalty going strong too.
Business Model of Online Food Delivery Companies:
This online food delivery is not new. It was an old system used by selected franchise in India like Dominos, Pizza Hut for decades now. This online food delivery companies are just following the same business model but they are including all the small and big restaurants near your location so that these small players can also benefit from the same. Major benefit for these restaurants is that they can cover orders in large area. Generally these companies map the customers with the restaurants that are in radius of up to 5 km. All this doesn't come free of cost for the restaurants and these online food delivery companies generally charge some percentage of revenue as commission to the restaurants and delivery charges to the customers.
Business model sounds interesting right lets look at Key Growth Drivers:
Increase in smartphone users and internet access:
The role of mobile apps and also web-based system of ordering food cannot be undermined at this point. With more people using smart phones, increasing literacy and access to the Internet, the fortunes waiting to be reaped from the business of home delivery are just a click away! The world's F&B e-commerce users reached 1.5 billion in 2019 and are expected to grow by 800 million, with an average of 25% y-o-y growth, by 2024. Indian food delivery platform, Zomato, has 80 million monthly active users and has set targets of reaching 200 million over the next few years. Hence increase in smartphone users and internet penetration is driving growth in online food delivery services. Also growing working population and inflating income levels is driving the market further in the country.
COVID-19 Pandemic:
Currently dining out segment of restaurant is operating at 20-25% of pre-Covid level. Slump in the industry is largely driven by markets being in lockdown, consumers not stepping out due to fear of transmission and restaurants not opening up, even if the city is not in lockdown. In this case, those who want to enjoy restaurant food will either visit the restaurant and take the parcel or possibly the customer will order food online and enjoy the dish. Many companies have adopted safety and hygiene measure to take care of the employees who are delivering food and also of the customers. One such measure is contactless delivery where customer can prepay for the food and the person will keep the food outside the house or any preferable location.
According to the estimates by IMARC Group, the India online food delivery market is expected to witness a CAGR of 30.11% from 2021 to 2026.
SWOT Analysis:
These companies have got deep pockets and investors are pumping in money because they see good future growth in this business. Earlier they used to focus on promotion to acquire market share and used to give huge discount (50-100% off). Now companies have acquired huge customer base therefore, these promotions have reduced and company is focussing on growth.
One can read SWOT Analysis in detail from here: SWOT Analysis of Food Delivery Service Business. They have explained it in more detail and I will give this site credit for SWOT Analysis for this blog .
Major players in this business:
In India, two major players in this industry are Swiggy and Zomato. Details of the company like founder name, how it was started, investors and funding rounds are easily available. So let's look at the financial performance of both of these companies.
Revenues of both the companies:
Revenues have grown exponentially from a total of ₹ 239 crores in FY 2016 to ₹ 5697 crores in FY 21. It is compounded growth of 89% in 5 years. Since this business is new and there is a huge market to capture considering the population of India, there is still scope of growth in revenues in the future.
Net Profit of both the companies:
This is something that is shocking and both the companies are burning cash and still loss making company in last 5 years. One of the reason would be company is spending almost 30-50% of their revenues in promotional activities because of which company is not able to convert their top line: revenues into positive bottom line: net profit. This story is same for mostly all early stage startups in India.
Key Performance Indicator (KPI):
Some of the KPI of these online food delivery companies are:
Total Amount Of Orders
Average Number Of Deliveries/Orders Per Hour
Average Profit Per Delivery
Average Order Duration
Percentage of Driver Is On Order / Idle
Number Of Support Tickets
Churn Rate
Customer Lifetime Value (CLV)
Net Promoter Score (NPS)
Explaining all this will make this blog boring for readers. Those who are interested they can refer this site and read all the KPI in detail: Essential Metrics & KPIs.
Brief about Zomato IPO:
Zomato was founded by Pankaj Chaddah and Deepinder Goyal in 2008. Zomato earlier started with information, menus and user-reviews of restaurants and in the last few years they started food delivery options from partner restaurants in select cities. In Jan 2020, Zomato acquired Uber Eats one of their competitors in same business.
Few investors of Zomato are: InfoEdge, Sequioa Capital, Vy Capital, Temasek, Tiger Global Management. Zomato has filed for $1.1 billion IPO with the market regulator SEBI, India in April 2021. Major part of its IPO proceeds will be used to fund for organic and inorganic growth of the company for next 5 years. Other purpose of this IPO is Offer for Sale by InfoEdge. Their intention is to sell worth $100 million. Currently InfoEdge holds a 18.5% stake in Zomato that is worth $995 million and they are selling roughly 10% stake. InfoEdge was the first institutional investors in Zomato and had invested $0.64 million in 2010.
More details of Zomato will be shared once IPO subscription starts in coming months.
Thank You friends for giving your precious time in reading this blog. Like and Share with others too so that they can also understand about the business and recent Zomato IPO.
I hope all our friends and their family are safe and taking necessary precaution in this pandemic. We are seeing spike in cases and death daily. Step out of your home only if it's important. Take medical precaution and wear an appropriate mask while stepping out. Social Media platforms have become negative, but use this platform in a positive way by reaching out to any close friend or relatives. While sitting at home we can use social media constructively by helping others those who are in need of necessary medical equipments or medicines. I am also trying from my end and feel free to reach out on Twitter, Whatsapp and LinkedIn and ping me at any time on any platforms. I am always available and will help everyone.
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