Indian horeca - are investor betting on start up to scale up

Depending on how start-up is defined – most of the food delivery companies and restaurant chains are start-ups backed by venture capital firms. According to a newspaper article many food delivery companies have raised 2nd round of funding in Dec’2017 since 2015 when the bubble last popped. Few of these companies like Swiggy, Zomato and FoodPanda who have raised funding are working in a more matured ecosystem and not increasing market share by offering discounts.

Beeld: ©Image Source : Livemint and FirstPost

In his book INDIA GROWS AT NIGHT, the author mentions how software and Telecommunication sector where government intervention has been minimal has grown at a fast space and enjoy good reputation globally. Most of the clients of the software companies were based in US and since India and US has 12 hours’ time difference so the employees of the companies either used to work at night time or stayed back till late in the evening. Food delivery companies (Euromonitor uses the term Food Service companies) and restaurant chains are experiencing similar growth and are attracting investment compared to other sectors in the agro-food companies. This article tries to analyse if the HORECA sector also resembles a similar theme of India grows at night considering that they cater to young professionals in major cities and raises investment mostly from foreign funds.

YOUNG CUSTOMERS ADAPTING TO GLOBAL TASTE

These companies cater to a young population in major cities like Pune, Mumbai, Delhi and Bangalore. Young Indians like to eat and drink outside while young professionals who have to work late hours prefer to order food online from the convenience of their home or office. They are also well travelled as travelling is a part of their lifestyle and so are inclined to try out new cuisines such as middle eastern, Latin American and fusion themed for Asian cuisines. Since most of the owners of the food delivery companies and restaurants are of the same age as their customers, the owners also introduce new varieties of cuisines. The young consumers are also health conscious and well aware that eating late in office or eating out may be unhealthy. They are mindful of how much calorie they consume and the nutrition aspect of the meal.

IMPORT OF FOODS, INGEDIENTS & BEVERAGES

The HORECA sector imports food , ingredients & beverages that cannot be sourced locally. With the rapid expansion of the sector this is also expected to increase rapidly though from a small base. In some products such as cheese, processed fruits & vegetable especially processed potatoes, poultry, swine meat, beer and sauces, Netherlands occupies an important position as source of import. However the import process continues to be complex and relatively costly. To get a better understanding of the market opportunities for imported food products the Netherlands Embassy in India carried out a study.  

TECHNOLOGY AND BUSINESS MODELS

Consumers shifted from ordering online to ordering from the convenience of smart phone very quickly. Most of the food delivery companies developed their own apps where consumers can order from different restaurants at a minimal packaging charge and delivery price. This also helped restaurants to receive order from different channels. To tackle the infrastructure challenges of rapidly urbanising major Indian cities new business models were introduced which were very unique to India. One of it is cloud kitchen.

Beeld: ©Euromonitor

ARE INVESTORS BETTING ON STARTUP TO SCALEUP

Depending on how start-up is defined – most of the food delivery companies and restaurant chains are start-ups backed by venture capital firms. According to a newspaper article many food delivery companies have raised 2nd round of funding in Dec’2017 since 2015 when the bubble last popped. Few of these companies like Swiggy, Zomato and FoodPanda who have raised funding are working in a more matured ecosystem and not increasing market share by offering discounts. These companies attract investment from foreign venture capitals like Light Speed Ventures, Tencent, Alibaba. Even companies operating full service restaurants are also attracting investment. Rabo Equity Funds – a private equity fund of Rabobank which mostly invest in agro – food companies have recently invested in Olive Bar Kitchen – a company that runs restaurants in major Indian cities.

2018 will be an exciting year also for the sector since there is more clarification on the implementation of the tax structure for the HORECA sector and how they manage with the supply chain in the changed tax regime.