Asia 2016: Food tech startups in for big churn, fierce competition & tougher fundraising

When it comes to food delivery companies, 2015 was the year they broke out and made an impact on lives of people, at least those living in urban areas of Asia. And India, where startups in the sector were christened ‘food tech’, was the biggest market for them, and also the place where the food tech guys had truly arrived.

Rise in funding and trouble in India

From raising significant rounds of funding to expanding to more cities, they did it all. However, not all of them did a good job of managing it. Tiny Owl, which raised $26.8 million in funding and quickly spent it to expand to more cities, ran into employee revolt where one of the founders was held hostage in his own office until the police came to the rescue. The company struggled to pay its employees. For its founders, raising funds was relatively easy but they lost their way spending it.

2016 Outlook

Others like Foodpanda, part of the global Rocket Internet-backed network, became the biggest player in India but struggled with fake bookings by restaurants that did not exist and by customers who purposely ordered from restaurants that had closed down so that they could get a voucher for undelivered food. This mismanagement went on for over a year, until the CEO was replaced. Now the company is trying to weed out the errant employees and fake restaurants. The firm is also laying off 15 per cent of its staff in India.

Zomato, which raised a $60 million round in September for a ‘unicorn’ valuation, seemed to avoid all such problems and expanding nicely around the world, until an email from founder Deepinder Goyal was leaked. The company also cut hundreds of jobs, mostly in its US team, where it had aspirations to compete with Yelp, but was lucky to survive over there. It also started a food delivery service in India — a move that seems logical given that it had a lot of data about restaurants that were listed with it — and has now expanded that to Philippines where it will compete with Foodpanda.

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Food tech players also include some players who decided to set up their own kitchens and delivery, like Faasos, which tied up with chefs and provides a selection of cuisines and meals, and has raised $58 million so far, second only to Zomato. InnerChef and HolaChef, with comparatively much lower funding of $1.6 million and $3.4 million respectivelyalso provide food cooked in their kitchens to customersBiteClub started a service where people cooking in their homes could sell to a wider audience.

Adding variety in Asian food scene

With funding seemingly available for anyone willing to start a company in this space, a whole range of them emerged across Asia.

Being Chef delivered ingredients, including processed materials and all you have to do is cook. Shanghai-based Saucepan also launched a cook-at-home service, the first in the city, and now takes care of time-intensive steps such as roasting and braising and all you have to do is reheat and eat.

BoxGreen, currently operating only in Singapore, has started a monthly service of supplying dry fruits — and concoctions made by mixing them — to tap into customers who want to eat healthy. Eatigo, based out of Singapore and Thailand, raised funds for its service that allows users to book restaurants and pay after their meal.

Nakamura Hitoshi’s Grace Inc. takes booking services to another level, by having a customer database that helps predict which orders they are likely to make and helps prepare the restaurants in advance. The service has signed up several fancy restaurants in Tokyo’s buzzing downtown.

Amazon added fresh meat and vegetables to its service in China, but was again a step behind Alibaba which was quicker to spot this opportunity. China’s Fruit Day, fresh from a $70 million investment by online direct seller JD, plans to be the biggest retailer of fresh produce.

Challenges and expectations

Foodpanda’s issues in India, as mentioned above, clearly pose a challenge. The company fared worse in Vietnam, a much smaller market than India, where the business was sold to local rival Vietnammm, a subsidiary of food delivery major Takeaway, after it ran into financial trouble. The acquisition will help Vietnammm compete with Eat.vn, another food delivery app backed by online media companies.

In 2016, all of such players will face more competition because ‘food tech’ doesn’t really require a lot of tech. It is relatively easier to start a new company in this sector than say, big data analytics. This is the reason why there are 15 such startups in India alone, where funding was easily available, but as Tiny Owl’s case shows, management was an issue..

And also expect things to get tougher in terms of funding as spendthrift investors draw back and take more time approving funding requests. After an exuberant year, they are pulling back and being more circumspect about companies, something that should have happened earlier.

It will be a year when some will shut shop — like Dazo had to in 2015 – and others might consolidate. And a couple of them might emerge as winners. “It is a winner takes all market. What won’t work here is a one-size-fits all, cookie cutter approach that was employed by Rocket Internet. You got to understand the market,” said Ashish Taneja of GrowX Ventures.