Cab ma­jors go on a food trail at hefty $400-mn bill

Food de­liv­ery apps of Ola and Uber are chas­ing the third place via deep dis­counts, ex­pan­sion

Business Standard - - FRONT PAGE - PATAN­JALI PAHWA & KARAN CHOUDHURY

On­line food dis­cov­ery, or­der­ing and de­liv­ery apps Food­panda and Uber Eats, owned by cab ag­gre­gat­ing gi­ants Ola and Uber, re­spec­tively, spent al­most $400 mil­lion in 2018 on rapid ex­pan­sion as well as dis­count­ing to gain new cus­tomers, it is learnt.

Ac­cord­ing to sources, the two com­pa­nies are plan­ning to make sim­i­lar in­vest­ments this year as they plan to di­ver­sify into gro­cery de­liv­ery ser­vices and fi­nally set up concierge ser­vice by end of the year.

Uber Eats and Food­panda did not re­spond to de­tailed ques­tion­naires sent to them.

The fight for num­ber three

The duo have been fight­ing for the third spot in the food de­liv­ery lad­der, with Uber Eats edg­ing Food­panda by 2 mil­lion or­ders. To­gether, they de­liver 15 mil­lion or­ders a month. Mar­ket lead­ers Swiggy and Zo­mato de­liver be­tween 20 mil­lion and 30 mil­lion or­ders a month.

While ac­quir­ing Food­panda in De­cem­ber 2017 for around $50 mil­lion, Ola

had an­nounced it would in­vest $200 mil­lion in the firm. It has stuck to that prom­ise. To take on Swiggy and Zo­mato, it has been burn­ing cash to dis­count food and give higher mar­gins to restau­rant own­ers.

A source in the com­pany said Ola was fol­low­ing the same play­book with Food­panda as it did in its early days as a cab ag­gre­ga­tor — deep dis­counts. “The com­pany’s goal, at present, is to get as many users and or­ders as pos­si­ble. It has to take on Swiggy and Zo­mato,” said a for­mer Ola em­ployee. Food­panda has been on a rapid ex­pan­sion drive as well. With its ex­pan­sion to 50 cities, Food­panda’s de­liv­ery net­work is now the largest in the coun­try, with more than 125,000 de­liv­ery part­ners at­tached to the plat­form. All of this comes at a price.

Where ex­actly are they spend­ing The two foodtech uni­corns burn much more than their mo­bil­ity coun­ter­parts. But they have more depth in their food de­liv­ery arms and bet­ter built out in­ter­nal so­lu­tions. “Rapid ex­pan­sion as well as dis­count­ing cost money. Food­panda is of­fer­ing as much as 70 per cent dis­counts at times. They are pay­ing the bal­ance amounts to restau­rants via which they are giv­ing the of­fers. All this re­quires a lot of cash,” said a se­nior ex­ec­u­tive in Food­panda’s mar­ket­ing strat­egy team. UberEats has also turned up the dis­count vol­ume in key cities.

Food­panda is also work­ing on ex­pand­ing its net­work of cloud kitchens, which is a cap­i­tal in­ten­sive pro­gramme. It started this af­ter it ac­quired Ho­lachef last year.

“Set­ting up cen­tral kitchens is al­ways a cap­i­tal in­ten­sive mea­sure. The kitchens have to be equipped, chefs and sup­port staff need to be hired and de­liv­ery lo­gis­tics need to be in­stalled around the kitchens. All this has been a ma­jor ex­pen­di­ture for Food­panda,” said the source.

Along with this, Food­panda also made large hires and stepped up restruc­tur­ing in its ex­ist­ing work­force. All in all, it meant spend­ing a lot to make the com­pany com­pet­i­tive in the cur­rent land­scape.

On the other hand, UberEats, which was launched in Mum­bai in May 2017, has been spend­ing on adding cities and cre­at­ing the net­work for its gro­cery de­liv­ery ini­tia­tive, which it plans to start this year.

Now present across 37 cities, it is also spend­ing a fair amount on mar­ket­ing to ac­quire cus­tomers ei­ther through dis­counts or out­door ads.

This year, the com­pany will also ex­pand its net­work of vir­tual restau­rants in part­ner­ship with Café Cof­fee Day.

Last year the two firms part­nered to launch ‘de­liv­ery­only’ restau­rant brands ex­clu­sively on the Uber Eats app. The com­pany has been run­ning a pi­lot since Novem­ber last year and will ex­pand on the pro­gramme.

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