Food delivery in India –

market overview

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Food delivery in India:
overview

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India: Food delivery market summary
Market size & dynamics
Per Redseer, India's existing spending on
restaurant food services (a part of which is
addressable for food delivery platforms) was
$65bn in 2019 and is likely to grow to $110bn
by 2025. This is based on the assumption that
the restaurant food services market as a
percentage of overall food services in GDP
remains largely similar. The penetration of
online food delivery services within the
addressable market of restaurant food services
in 2019 was 6%, implying $4.2bn in money
terms. Penetration is estimated by Morgan
Stanley to increase to 19-20% by 2025.
Consequently, the online food delivery market
grows to $21bn.
Market playfield
Ecosystem-like horizontal food delivery players.
A category of the food delivery players, offering
multiple services and targeting various
adjacencies, has two recognizable
representatives: Zomato and Swiggy. Zomato
offers a table reservation service, a discovery
platform to restaurants for dining out, and
supply of groceries to restaurants. Zomato has
recently used the strategic investment route to
expand its core business offerings outside of
food by investing in adjacencies such as a
hyperlocal grocery delivery company (Grofers),
an offline retail discovery platform (Magicpin), a
logistics aggregator platform (Shiprocket), and a
holistic health and wellness platform (Curefit).
Swiggy uses its hyperlocal delivery platform to
build alternative verticals such as grocery
(Swiggy Instamart) and local courier services
(Swiggy Genie). It also operates cloud kitchens
(The Bowl Company, Goodness Kitchen,
Breakfast Express, Homely).
Restaurant-enabled delivery.
QSR brands that operate chains of restaurants
(such as Domino's, Pizza Hut, etc.) have their
own delivery infrastructure (digital/physical).
Many brands participate in the delivery market
through aggregators / delivery partners as well,
but some prefer to control the entire delivery
experience. Within the overall food delivery
market in India, Morgan Stanley estimates
delivery sales of various key brands (including
their own channel as well through aggregators)
at less than 10% in 2019.
Cloud kitchens.
Rebel Foods operates multiple delivery-only
restaurant brands across many cities. There are
other examples of cloud kitchen business
models, such as Box 8 (parent company is
privately held Poncho Hospitality). Food delivery
platforms like Swiggy also operate cloud
kitchens under the brand names of The Bowl
Company, Goodness Kitchen, Breakfast
Express, and Homely.
Infrastructure providers.
Technology enablers category for restaurant
industry in India include Peppo, Thrive, Dukaan,
DotPe. DotPe has built a direct online ordering
platform offering payment processing and
catalogue discovery. It has added over 20k
restaurant outlets in India so far.
Hyperlocal delivery companies.
The horizontal hyperlocal delivery companies
like Dunzo solve for last-mile delivery services
(hence controlling the customer experience)
and address the "Quick Commerce" part of the
overall E-commerce market: So far, Dunzo’s
approach has been to address the market like a
horizontal player. However, it recently launched
a vertical-specific offering Dunzo Daily to service
instant delivery of groceries. As part of the
horizontal services, these players could also
address the food segment as well.
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India: Food delivery market summary,
continued
Backbone industry overview critical element of the service performed. Per
Zomato, the median time for food delivery was
about 30 minutes in F21. Second, the demand
Largely fragmented and unorganized market of
for food peaks at lunch and dinner, therefore,
the restaurant food.
companies have to build capacity for peak
demand and not just the average number of
India's restaurant food market has a large
deliveries per hour per day. To compensate
unorganized component. Chain restaurants
peak loads, aggregators introduce convenience
account only for ~6% of total restaurants,
fee for the end consumers. As a result, the
further, the share of the unorganized market
monetization model mixes both B2B and B2C
was ~78% as of 2019. Within the overall market,
earnings .
the share of the top 10 restaurant chains has
become more fragmented.

High order frequency drives dollar retention in

client cohorts.

Order frequency of the users consuming

restaurant-cooked food is comparable to levels
in some of the other markets – roughly 15
orders / year.

In the food category, customer cohorts are

healthy and show good repeat behavior. For
instance, Zomato's gross order value cohorts
show that a customer who came on board the
platform in F17 was spending ~3x more in F21
compared to the amount spent in F17. Similarly,
for Swiggy, the repeat behavior shows in
monthly frequency improving from 2x in month
1 to almost 10x in month 53 for existing
customers.

Hyperlocal delivery is a critical success factor for

food business

Given the perishable nature of the product,

food delivery companies have built scalable
models of hyperlocal fleets across 500+ cities in
India. Timely delivery within 30-45 minutes is a

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Food delivery in India:
competition overview

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Food delivery peers in India: Zomato
Product proposition
Zomato offers a table reservation service, a
discovery platform to restaurants for dining out,
and supply of groceries to the restaurants. The
company has recently used the strategic
investment route to expand its core business
offerings outside of food over the medium to
long term by investing in adjacencies such as a
hyperlocal grocery delivery company (Grofers),
an offline retail discovery platform (Magicpin), a
logistics aggregator platform (Shiprocket), and a
holistic health and wellness platform (Curefit).
Monetization model: delivery
Restaurants can list for free but have to pay to
use delivery services on its platforms. As a
customer places an online food delivery order on
the aggregator’s platform, the company collects
the cost of food (net of restaurant and
aggregator-funded discounts), delivery and
packaging charges (passed through to delivery
and restaurant partners, respectively), goods &
services tax (GST), and tips (if any) from the
customer. The companies also pay an availability
fee to their delivery partners to encourage them
to remain active on the platform.
Monetization model: dine-in
Zomato lists restaurants on its online discovery
platform for free. However, restaurants pay
Zomato to help them enhance their visibility on
its platform and increase demand for their
dining-out offerings. Zomato allows restaurants
to run brand marketing, sales, and promotion
campaigns targeted at high-intent customers.
Zomato can also provide a suite of services to
restaurants including analytics and dashboards,
table reservations, and payment processing.
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Food delivery peers in India: Zomato,
continued
Zomato vs Swiggy

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Food delivery peers in India: Zomato,
continued
Unit economics
Zomato's food delivery in F21 turned positive at
the contribution margin level (~5% of GMV)
despite lower average order value vis-à-vis global
peers. Globally, we note that large companies
like Delivery Hero have guided for a contribution
margin in the 5-8% range for its food delivery
businesses across markets. However, the
contribution margins for Asia are likely to be less
than in some of the other markets. We expect
contribution margins of 5-7% on a steady-state
basis for Zomato and adjusted EBIT margins of 4-
6% as a percentage of GMV. This would be in line
with to one notch better than some global peers.
The steady-state margins for food as a category
would be 4.6%, which compares with a 3-6%
range for some of the other categories (such as
grocery, travel, etc.)

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Food delivery peers in India: Dunzo
Product proposition
Dunzo is a hyperlocal delivery player in key cities
such as Bengaluru, Delhi, Gurugram, Pune,
Chennai, Jaipur, Mumbai, and Hyderabad. Dunzo
owns the delivery layer, including the logistics
and supply chain, and hence takes responsibility
for delivering the order or completing the task.
Within the food vertical, Dunzo works with local
restaurants directly or via technology providers
and powers the back-end last mile logistics
operations of the restaurants. Per media, Dunzo
has scaled from 600 merchants as of March 2019
to 11,000 merchants as of February 2021. Dunzo
has also started Dunzo Bike Taxi to provide
affordable commuter services.
Monetization model
Per media, Dunzo has multiple revenue streams
including delivery fees for services like pickup
and drop off, commission from partners' stores,
surge pricing when demand is high, and revenue
from bike taxis as well.
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