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Food-tech Industry: Online companies deliver growth for offline restaurantsTwo of the largest platforms in India doing this — Zomato and Swiggy — in thepast five years, received nearly as much amount in funding from private equity(PE) and venture capital (VC) investors as the organised restaurant chainsdid. (Illustration: Mithun Chakraborty)In its early years at the beginning of this decade, food-tech was a termprimarily associated with listing platforms that would help restaurantsincrease awareness about their businesses. This was followed by consumerinternet companies entering into a deeper layer of agreements with brick-and-mortar restaurants to take orders on their behalf, thus becoming aggregators.The next progression for online firms, the form which they are in currently,was hyperlocal — as per which, they become single-point source for restaurantowners to sell food and one-stop shop for customers to buy it. In thisprocess, these start-ups burnt millions of dollars to acquire customers butended expanding the market, for their own services as well as for eatingjoints.Two of the largest platforms in India doing this — Zomato and Swiggy — in thepast five years, received nearly as much amount in funding from private equity(PE) and venture capital (VC) investors as the organised restaurant chainsdid. The Indian Express reported on Wednesday that while the PE-VC funds havepumped in $843 million in the restaurants business — as per data sourced fromChennai-based firm Venture Intelligence — the investment in the two onlineplatforms has been about $700 million.Read | Zomato, Swiggy gets $700m investment, restaurant sector $843millionExperts believe that even as food-tech companies have started raking in asmuch money from PE-VC funds as restaurants, all along the chain havebenefited.“As an industry, eating out and calling in is a large industry and is muchbigger than the FMCG sector. It’s growing at about 10-12 per cent every yearand is a sustainable growth model because eating out and calling in willcomprise a large share in the consumers’ spending as years evolve. Currently,the industry is at the beginning in India. In developed countries, it took theindustry 10-20 years to reach the size and scale they are at now. In India,modern formats have just started developing,” said Saloni Nangia, president,Technopak. “The scale that companies like Zomato and Swiggy can achieve isdifferent from what a chain of restaurants can achieve. These platforms havegiven a new ecosystem for the restaurants. Be it discovery, reviews, onlineordering, it’s a completely new ecosystem that has come up that has beensupportive from a growth perspective for the brick-and-mortar restaurants,”she added.This is in contrast with the retail sector, where growth of order volumes fore-commerce companies such as Flipkart and Amazon have negatively impactedtraditional retailers.“Zomato and Swiggy have ridden the growth of mobile and internet and there are10 million people in the top-eight cities who eat out every day. None of therestaurants, barring Domino’s Pizza, have got a presence across India with thedepth Dominos does. The reason why Swiggy and Zomato are getting the fundingthey’re getting because they have solved the problem of expansion in number ofcities and depth in a city,” co-founder of healthcare and food start-upCureFit, Ankit Nagori told The Indian Express. According to research firmRedSeer Consulting, the online daily order volume has more than doubled in ayear to 4,50,000 in 2017 from 2,00,000 in 2016.However, food-tech companies have recently started going beyond the concept ofconnecting restaurants with customers and some of them like InnerChef, Faasos,Freshmenu are operating cloud kitchens. Explaining the concept of cloudkitchens, Nagori said that companies, instead of producing a wide variety offood items, are making a limited number of items but in a standardised manneracross all their outlets — as it is with multinational restaurant companieslike McDonald’s or Domino’s Pizza.The slew of investments by PE-VC funds in the restaurants spacenotwithstanding, experts believe that the segment is not an attractiveopportunity for this particular type of investors compared with the consumerinternet space, including food-tech. This is primarily because the highcapital expenditure that brick-and-mortar restaurants demand and the slowerrate of scaling up than food-tech companies such as Swiggy and Zomato.Gurgaon-based Zomato, which offers listing, feedback and delivery services,has seen investment from firms such as Sequoia Capital, Info Edge, TemasekHoldings and, in the latest round, China’s Ant Financial. Swiggy, on the otherhand, which provides food delivery services through its exclusive fleet ofriders has raised funds from investors including Naspers, Accel Partners andBessemer Venture Partners.The consumer internet companies, despite reporting losses from operations, arestill attractive to PE investors given the rapid scaling up of business andvaluations, which gives their investors an early opportunity to exitprofitably.“Private equity firms invest in profitable restaurant businesses but notventure capital funds because they don’t see enough value in the scale andthere is a lot of capex involved. The restaurant business is not attractivefor VCs because they are looking for return in multiples of their investments,and in restaurant business that kind of return is not visible as, say, in acompany involved in food delivery or listing,” said Satish Meena, seniorforecast analyst at Forrester Research.However, the food-tech industry in India has arrived at the current stageafter a number of companies shut shop or consolidated into other firms. Tillaround two years ago, there were a number of food-tech companies operating inIndia, but many of them did not survive. These include EatOnGo, TinyOwl, Dazoand Eatlo. Last year, Zomato acquired food-delivery start-up Runnr and taxi-hailing company Ola acquired Foodpanda India from Berlin-based Delivery HeroHolding GmbH.