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Aug, 2022     

What’s next on the menu for India’s FoodTech Market?

Contribution Margin for food-tech business to have improved by 0.8pp driven by increase in revenue

Technology has taken the centre stage in all aspects of life, and the same holds true for India’s food industry as well. With disruptions such as quick commerce, changing consumer behavior, and a life that is more inclined to convenience, the whole sector is witnessing waves of change like never before.

1. We expect the food-tech market GOV (Gross Order Value) to have grown by 6.5% in the previous quarter…

The Gross order value (GOV) growth for food tech platforms in this quarter was driven by strong macro factors like opening of workplaces and IPL season (India’s leading cricketing tournament) in the period.

Growth trends was similar across metro (top 8 cities) and next 70 cities. However, the growth in rest of India was slightly higher driven by lower penetration and maturing of cities where food-tech platforms expanded in previous quarter.

2. …driven by growth in transacting users compared to last quarter with opening up of workplaces pan India

Note-: 1: The baseline is the median value, for the corresponding day of the week, during the 5-week period Jan 3–Feb 6, 2020 2:Headline number compares mobility for the report date to the baseline day. Calculated for the report date and reported as a positive or negative percentage

Last quarter (April, May, June) saw strong opening up of workplaces with Google Mobility Index indicating ~45% higher workplace footfall compared to pre-CoVID levels (baseline basis median value during the 5-week period from Jan 3-Feb 6, 2020). Our estimates suggest 7% growth in average Monthly Transacting Users (MTU) compared to previous quarter (Jan, Feb, Mar) driven by increasing adoption of food tech platform from office going population. This is also reflected in the increasing contribution of lunch orders which has grown 2x of overall growth of the food tech market.

3. However, the per user spend on food-tech platforms came down as a result of higher offline options

Per user spend on food-tech platforms reduced by 0.5% q-o-q as a result of frequency of ordering reducing by 2.5%. At the same time, Average Order Value has increased by 2% q-o-q. The drop in order frequency is driven by better availability of offline options compared to previous quarters and increase in delivery time on food tech platforms owing to supply challenges of delivery executives.

4. Contribution Margin for food-tech business to have improved by 0.8pp driven by increase in revenue

Within the revenue heads, there was slight increase in commissions driven by AOV growth. However, delivery fees charged by the platforms remained in the similar range. Other operational revenue from advertisement and subscriptions has improved by 0.5pp in the previous quarter.

Discounting costs have reduced slightly for the food-tech platforms. However, the delivery costs increased this quarter as a result of lower availability of delivery executives driven by competition from quick commerce platforms, return of gig workers to pre-pandemic jobs and seasonal trends such as harvesting season when gig workers go back to their hometown.

5. Quick commerce is a valuable addition to the food delivery platforms driven by common transacting user base

There are significant synergies between the quick commerce and food tech platforms with 75-85% transacting users of leading quick commerce platforms shopping on food tech platforms as well in a particular month. This presents a significant opportunity for food tech platforms to increase the wallet share of users and rationalize CAC and LTV via holistic loyalty programs.

The numbers and trends above, as you can see, tell us an interesting story. We’ve already seen much of that growth pattern play out in recent times, but there is more to come. With quick commerce and food tech players working in tandem, there is no doubt that there is a lot for us in store for the future.