Outlook of Food Delivery Industry
Published by Sharekhan Education | April 22, 2021
Outlook of Food Delivery Industry
With Zomato filing for an IPO Food Delivery sector has come into limelight. Indian food delivery market is at a nascent stage with an industry size of USD4.2bn comparing to USD21bn for USA and USD90bn for China. Indian food delivery market is only a fraction of the USD67bn out-of-home food eating market. It has reported a staggering 147% CAGR over FY18–20.
Online food delivery apps like Zomato and Swiggy have fundamentally altered the food ordering experience. These platforms aggregate multiple restaurant menus with all the relevant details, including pricing, and reviews, making ordering a seamless experience. For a small fee, food delivery platforms offer consumers a variety of food choices, ease and a consistent ordering experience. They also provide a delivery fleet to restaurants, thereby significantly widening their catchment area. The COVID-19 pandemic has increased the relevance of food delivery platforms for both the consumers and the restaurants.
Growth Outlook:
Revenue drivers for the food delivery business include the number of transacting users, ordering frequency, Average Order Value (AOV), take rates charged to restaurants and the number of restaurants that the company ties up with. Improved customer retention helps drive average order frequency. Delivery costs and discount and marketing expenses constitute the bulk of the expenses.
A platform’s stickiness drives higher advertising revenue from restaurants. Food delivery platforms also typically run loyalty programs that reduce delivery charges, but ensure higher ordering frequency. They operate on an asset-light model with high consumer loyalty. Global insights indicate consumers love the sheer convenience of online food ordering, leading to higher ordering frequency, which drives growth and eventually profits.
Non-home cooked food or restaurant food is only ~10% of the overall food consumption market in India (54% in United States and 58% in China). Changing consumer behavior, reduced dependence on home-cooked food and increasing disposable income would expand the addressable market for the food delivery platforms. We believe higher food tech platform usage can increase India’s eating out frequency, which is much lower than comparable global peers.
Adoption of food delivery platforms will be a function of user education, availability and ease of payment options, and reach of platforms. Since India has only 45–55mn online food delivery users compared with 740mn mobile broadband connections, penetration of online food delivery platforms has a long runway for growth.
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