The Thesis
Published in

The Thesis

Evolution of food-delivery

Image source

The evolution of food-tech (and specifically food-delivery companies) in India is very interesting, and I believe, a fantastic case study into how marketplaces evolve. Here I attempt to trace this evolution, capture some lessons for marketplaces, and see if I can extrapolate to predict future trends in this industry.

Let us first start with the delivery value chain for a restaurant. A restaurant has to undergo the following steps for food delivery.

The pre food-tech delivery value-chain for restaurants

Initially, restaurants used to do all these steps by themselves — they used to create their own menu, set up their kitchen, send pamphlets to nearby apartments and took orders over phone calls, procured raw materials and prepared food, and even sent their own staff to deliver. Decentralized, sub-scale in terms of operations, yet a huge industry in themselves — ripe for disruption.

Phase 1: Building a marketplace

Zomato first tried to solve for the “customer acquisition” leg by creating the most preliminary marketplace — restaurant menu listing. Thus solving for “discovery” of new restaurants.
Then came Swiggy who made two changes. First, they absorbed the “securing an order” leg by enabling the customer to place the order on their platform itself — adding a workflow layer on top of listing. Second, they managed the delivery of the food as well — thus also adding a service layer on top of the listing and workflow layers.
This completes the basic evolution flow of any marketplace: Listing → Enabling Workflow → Managed services. But this move also meant an important milestone: change in ownership of the customer from the restaurant to the aggregator. We have seen this pattern emerge in several other industries — in the US, many of these patterns find their origins in one place: Craigslist, the original “listing marketplace”.

When food-tech companies started managing delivery themselves, is the point at which I believe the marketplace found “product-market fit”.

Phase 1: Achieving product-market fit in food delivery

Now once this happens, a marketplace (just like Swiggy and Zomato did) will shift focus to two things: ‘capturing more value’, and ‘growth’. In the case of food-delivery cos, many of their next moves were aimed at solving for both.

Phase 2: Growth, and value-capture

Initial growth largely came from acquiring more customers in a geography, and expanding to more geographies (cities, even countries) with the “same basic product”.

In order to capture more value, the food-delivery cos followed the process of systematically establishing their presence in other legs of the value chain — leveraging their scale and tech-chops to create a little incremental value, and capture a lot of it.
They entered the “procurement” leg by becoming B2B providers of reliable, affordable and/or better quality supplies — from fresh ingredients, to staples and even packaging material. And of course leveraging their scale to negotiate better prices, and capturing a portion of the savings. In the process, they also improved customer experience (e.g., through better quality of packaging and improved state of delivered food).

By building Cloud Kitchen infrastructure, they variablized set-up costs for the restaurants — and hence incentivized more restaurants to open ghost kitchens in other geographies and unlock a new customer base. This initiative has several advantages for the food-delivery cos. This helped fuel growth by bringing more high-quality supply to their customers. And also created a concentration of supply in few locations in the city, which helps improve unit economics and/or delivery times tremendously through better resource planning for delivery fleet, batching, better route-planning etc. Clearly a lot of new value created, with the food delivery companies in a great position to capture most of it.

Even though both Swiggy and Zomato folded this initiative after a few years of trying, I do feel this is a winning initiative for the food-delivery cos, if executed correctly.

Through ‘Brand Works’, Swiggy entered the ‘menu design’ leg by leveraging their data around demand-supply gaps (e.g., multiple null-search results for vegan burgers in Central Bangalore) to work with brands on creating tailored products and delivery-only brands for those underserved areas — all powered by Cloud Kitchens.

Phase 2: Going up the restaurant value-chain

And of course, Swiggy also has presence across (and capturing value across) the entire value chain through their private brands.

Phase 2 contd: building parallel supply

Phase 3: new avenues of growth

While most of phase 2 was supply-focused levers of growth, phase 3 was about unlocking completely new use-cases while leveraging their two pillars of strength — strong hyperlocal delivery capabilities, and a solid customer base (zero CAC for new businesses). Swiggy entered into hyperlocal delivery of grocery, meat, alcohol, pet products; and also a pick-up and drop-off service.

Phase 3: venturing out of food-delivery

So, is food-delivery at it’s ‘mature’ state now, where no more new business models are expected?

Not quite.

Despite their scale, food delivery companies have managed to evade ‘the great unbundling’ — a common phenomenon in marketplaces that grow very big:

Because they get stuck in the trap of building products and features for the least-common-denominator of all customer segments, they ignore needs of sizable niches which new companies then come and capture.

Swiggy has managed to craft offerings that would be relevant to the few key niches I would expect to be sizable — healthy-food (with nutritional information), premium customer-base, and single-person-single-serve meals. In the absence of these, there would have been room for new players to enter and capture some share (Scootsy managed to pull it off for the premium segment — before it got acquired by Swiggy).

The other potential emerging business model might be platformization against aggregators like Swiggy & Zomato. Instead of being at the mercy of delivery-cos, restaurants might opt to open their own digital storefronts, and retain their customers. This might lead to opportunities to build the next ‘shopify for restaurants’. ChowNow is doing something in this space in USA.

The box which is relatively untouched so far, but where I expect some disruption, has been “operations”. Especially given the proliferation of dark kitchens, I see potential here for someone to consolidate kitchen operations for several brands within one kitchen (unlike today’s shared kitchen spaces, which are actually several siloed kitchens under one roof) and as a managed service. Apart from the franchise model, the tasks from ‘menu creation → kitchen operations’ were largely a bundle managed by one entity. I see this bundle breaking up into menu design (recipe and SOP creation) and operations. Just like how music artists only create the sound, but production (casettes/CDs) and distribution are handled by the labels and retailers/online aggregators. This space will heat up further, once kitchen automation technologies reach their inflection point. It’s a space I am very excited about.

Phase 4: Unbundling of menu creation and operations, and consolidation of operations?

Summary: few notes on marketplaces

  1. Marketplaces evolve from basic listing, to providing convenience through digital workflows.
  2. Many marketplaces also provide some crucial “managed services” to enable more trust/ affordability/ access
  3. Further evolution typically happens by going up the value chain on at least one side
  4. Companies might also grow by adding more services/ products to their customer by relying on their core strengths
  5. Marketplaces risk disruption, when needs of sizable niches are neglected due to focus on the least-common-denominator needs of the entire use-base
  6. Aggregator marketplaces also risk disruption through platformization — ‘shopify for X’



Get the Medium app

A button that says 'Download on the App Store', and if clicked it will lead you to the iOS App store
A button that says 'Get it on, Google Play', and if clicked it will lead you to the Google Play store