Can Chinese players retain a slice of the rising Indian food delivery market?

By Shen Weiduo Source:Global Times Published: 2018/12/9 17:06:53

An employee packs lunchboxes in the kitchen of an online food delivery firm in Mumbai, India. File photo: VCG

Chinese tech giants like Alibaba have been pumping capital into the booming food delivery industry in India in the past two years, with the ambition of replicating their domestic success. However, it may not be enough in the competitive Indian market, as Western rivals try to challenge them, alongside pushback from local restaurants.

The food tech industry has without doubt seen an enormous surge in India in recent years, which might reassure the Chinese investors who have been betting on its huge prospects by pumping capital into the sector.

According to a report from RedSeer Consulting in 2017, food tech is now among the fastest growing internet industries in the country and it will continue to grow in the near future. By 2021, the value of the food tech sector in India is expected to surpass $2.5 billion, with a year-on-year growth of 15 percent.

This has proven attractive to investors, and in the first half of 2018, the industry garnered $473 million in investment, of which a sizable amount came from capital-rich Chinese investors, a report from research firm Tracxn showed.

For example, Meituan Dianping, a Chinese food delivery giant, was a key investor in the Bangalore-based food delivery firm Swiggy's latest $210 million funding round in June. Other leading investors who pumped in money in the latest round included the Naspers and DST Global, Swiggy announced on June 21.

In Feburary, Ant Financial, the financial arm of Chinese e-commerce giant Alibaba Group Holding, has also pumped about $150 million into Swiggy's main rival, the Delhi-based Zomato, an online restaurant rating and food delivery platform.

Media reports said previously that Chinese travel portal Ctrip was planning to invest in Zomato.

Ola, an Indian cab aggregator, backed by Chinese ride-hailing platform Didi Chuxing, also made a foray into the Indian food delivery sector by acquiring Foodpanda India from the Germany-based Delivery Hero Group for $31.7 million in December 2017.

Rising challenges

Having achieved great success back home, these big Chinese brands are ramping up efforts to recreate their success in the tempting Indian market, and have quickly gained an initial foothold in the country.

Swiggy and Zomato currently dominate the industry with a market share of 35 percent and 25 percent, respectively, RedSeer said.

"These food aggregators have established their presence in tier 1 cities such as Bangalore, Mumbai, Delhi, and Hyderabad, with the growing urbanization and high population of millennial consumers there," Shekhar Anand, an India-based analyst at Euromonitor International, told the Global Times on Friday.

Saanvi, a 25-something old white-collar worker in Mumbai, told the Global Times on Saturday that she uses Swiggy or Zomato to order food almost every day. Sometimes, the apps offer discounts of up to 50 percent, so she chooses the one giving the best deal.

"Sometimes, they offer gold cards for special offers such as a free drink or a free appetizer and one has pay for the card to avail yourself of these offers," Saanvi said.

Due to the heavy discounts provided, consumers prefer to order online rather than going out to restaurants, and food aggregators try to lure customers to create a bigger base this way, Anand said.

Nevertheless, the cash-burning business model, which was also used by Chinese food delivery platforms in China during their initial expansion stage, is now encountering some barriers in India.

According to a report from news portal Quartz in November, many restaurants in the state of Kerala in southern India said they will not accept orders from food delivery platforms starting December 1. They said it was because they are worried that while food delivery platforms will initially help widen their reach, they will eventually kill their earnings, especially through heavy discounting.

The margins - could be as much as 33 percent - that these food delivery platforms charge are hefty, they said, according to the report.

Anand cautioned that the phenomenon could also be seen in many other states, and "a war is brewing between restaurant owners and food aggregators." The restaurants are more reluctant to partner with these food aggregators as they perceive them as a competitor.

This will drive these companies to adjust their strategy, especially as they venture into tier 2 and 3 cities in India, said Zhang Heng, a Shanghai-based industry analyst.

"Those Chinese investors that backed them should also be aware that 'copying' the strategy in China is not enough. They have to localize their future strategy in the country if they want to expand further."

Strategy shift

In fact, Chinese investors are facing more challenges than a resistence from restaurant owners in India.

According to Anand, Western counterparts such as Uber, with its Uber Eats platform, also wants a slice of the market. And veteran players like Pizza Hut, Dominos, McDonald's and Faaso's, another Indian food delivery platform, are pepping up the competition. They have the financial and operational resources to meet market demand and fire up the competition.

"All these factors might push Chinese investors to review their India strategy and figure out how to maintain their business edge in the market based on the real situation," Zhang noted.

"As for the restaurant owners' resistence, the two sides should come up with a sustainable commission rate, mutual agreement on the discounts given to customers, and aggregators should also share market research information with restaurants, to help them optimize their menu," Anand said.

Zhang noted that Chinese investors do have some advantages over other market players, and are also needed by their Indian counterparts since they are not only capital-rich, but also have a proven track record which derives from their mature data, experience and algorithms which could be applied to the Indian market.

Moreover, as India continues to urbanize, and with its high population of millennial consumers as well as their burgeoning consumption power, the populous neighboring country could gradually become more attractive to Chinese investors, and this will not be confined to the food tech sector, Zhang predicted.

At the end of 2017, Chinese investment in India totaled more than $8 billion, as the country has become a major investment destination of Chinese companies, according to data from China's Ministry of Commerce in April.

Newspaper headline: Appetite for India


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