This piece is Part 1 of a study that will seek to gauge an inside look at the workings of modern delivery kitchens and the problems faced by them.

Food is not meant to be a pricey affair, but it seems to be the norm nowadays. Why is there a difference between eating out and ordering in? Has food really gotten expensive, or has the industry been forced to adapt to uncontrollable changes?

Let us delve a little into the workings behind the Mobile Food Delivery Aggregator platforms and reflect on its journey from emergence to where we stand now. Over the years, as food and beverage establishments look towards improving their reach to consumers and growing from a conventional delivery channel to a platform-oriented one, the methods with which they can do so have been merged by Food Aggregator platforms.

Significant growth is predicted for food aggregators on a global scale; being an industry, powered by the gig economy which has swept North America, Europe and Asia in the past decade. China’s food delivery apps have the largest userbase and market penetration, reaching over 650 million people, the US is the second-largest market and the most well funded.

For anyone vaguely familiar with the workings of a food and beverage outlet, the term “food-costing” is well-understood. For those that aren’t, here’s a brief: the ratio of the cost of procuring the food to the income generated from its sale.

To better understand what this means, here’s an example:

To make a pizza, you need basic ingredients to make the base and sauce (flour, water, tomatoes, seasonings etc.) and toppings (cheese, veggies, meats). Rather than using the cost per kg for flour and tomatoes and the cost per gram of cheese or meat, each unit is divided into individual portions and priced using a predetermined formula.

With that in mind, the cost of making one pizza (pepperoni, extra-cheese, while we’re being hypothetical) is 25*. Now an average profit-making restaurant will sell this from anywhere between 100-125, if not more. With other operational expenses, the kitchen needs to sell at least 4,000 pizzas a month to make a profit, many a time not more than a 10-15%^# margin during a fair month. This ensures that all salaries, rentals, and operational expenses are met, and the owner may get to take the spare change home.

With the rise of food aggregators over the years — UberEats, Zomato, FoodPanda, DoorDash, Meituan, Delivery Hero and other similar regional variants — there is now an added expense to cater to. In the quest to attain a larger customer base, food outlets have thronged towards such aggregators with open arms, but the reality is slightly grimmer. What many failed to realize was that the initial lure of a small revenue share was just the bait. Years onward, the revenue share percentages have shot upwards of 20-30%¹ (local taxes not included), and outlets have had to comply or risk losing income.

Speaking of which, an outlet doing the same number of sales — 4000 x $100 = $4,00,000, with operational expenses at $3,15,000 to $3,50,000 (not counting fixed capital) — leaves a return of $50,000 - $75,000 per month. With the current pricing scenario of an average restaurant paying a commission of 28% of total revenue, the same sales on the delivery platform would mean a commission of roughly $96,000, which is more than the outlet can now afford financially, even though an additional $3,000 - $7,000 of expense is saved on delivery drivers.

What happens when the aggregator is at fault?

Let’s say you received an order. The order is prepared, but you notice your rider is still a long way from the location. As the consumer, to avoid delays and receive your order on time, you request to cancel the order, which the aggregator does. All this while, the restaurant has prepared the items as per the order and is now informed of the cancellation. There is no alternate rider, there is simply an order cancellation notification, the cost of which the outlet has already borne, and which will not be repatriated.

Another point to consider is the basic psychology behind the consumer, which shapes their decisions.

Presumption: A vast majority of consumers surveyed, upon being asked about their thoughts on the increasingly ridiculous discounts being offered to them with regards to the establishment, simply seem to presume the establishment has the funds to cope with them. This is not the case for most — a large chunk of food establishments are proprietorships or small chains, who end up taking a large hit on their operating incomes mainly due to the discounts they must offer to keep their customer base.

The cheapest is the best. A common mentality across many consumer segments is the notion that the cheaper, the better. For most establishments, simply increasing their prices is not the solution. This would mean they start losing out on their consumer base.

Instead, they have to offer discounts and promos to ensure that customers keep ordering from them and not go to their competitor, all of this while maintaining the quality of food that won them the consumer, to begin with. While consumer preferences are out of the control of the establishment, heavy discounts are an effective way to capture this market segment, no matter the cost. This is also the main reason a vast majority of food and beverage joints shut down fast because they are simply unable to cope with the rising costs and cross the threshold of their finances.

The additional rise in competition and multiple new options available every day are gonna make it harder for smaller outlets with lighter pockets. While competition is synchronous with development, this is exploitation by the larger firms, who can afford to buy their way in, and more importantly, out of a sticky situation. The smaller retailers and proprietors are left to deal with the fallout.

A consumer from the upcoming generations seems to be comfortable with the idea of paying extra for avoiding communication. A restaurant friendly food aggregator model is ever essential and is viewed as a need, one that makes it more affordable for food outlets to thrive and continue delivering a high-quality product while promoting market competitiveness.

Watch out for part 2 for solutions to problems highlighted in this article.

NOTES:

1. Inscope areas include food aggregator (Delivery Hero or Zomato) and not restaurant delivery (Domino’s); establishments covered under this include small and medium scale cloud kitchens and restaurants operating on food aggregator and not any separate delivery or takeaway service(s) offered.

2. Revenue figures are gross merchandise value (GMV)

*25 % is an average taken for the purposes of this article. The industry average globally is between 18%-32%, even peaking to 45% in some cases.

# An average restaurant can expect a monthly profit margin of 3-6% whereas cloud kitchens can expect anywhere between 12-18%. This varies significantly with various factors including, but not limited to rental, cost of raw material, market trends etc.

1. 10-20% is what most mid-level aggregators offer initially, while the major players charge anywhere between 25-33% All inclusive in many regions and areas.

Sources & References:

1. Primary market research;

2. MDPI;

3. Statista;

4. Business of apps;

5. Berkshire Hathaway

6. CB Insights

7. Experience

A few weeks ago, as part of a multi-industry panel, I participated in the webinar titled: "Surviving Covid-19 & Lockdown: Insight into Indian Businesses at the ground level" We endeavoured to take a course around building a deeper understanding of the impact of Covid-19 at the grassroots levels of multiple sectors in Indian business. Moreover, we looked at sustainable workarounds, sharing the discussion points & key takeaways with Confederate of Indian Industries - Delhi.

Off the bat, the panellists agreed with the predictions for an economic slowdown and were unanimous in thought. Expecting a minimum of 2 quarter slowdown post lockdown restrictions being lifted, many agreed it may last up to a financial year, if not more. This webinar was in the early days of the Lockdown that began in late-March, whereon, this prediction has become a sombre reality.

With respect to the remainder of our discussion, the following were some key takeaways for industries to consider:

Agriculture: The focus of agri-tech should be more on the “tech”. Providing farmers with the right tools and understanding of technology to maximize production off the land, and increase efficiency in operations. Using technologies such as Drone farming to remotely monitor fields and increase productivity.

Farming activities are expected to be at the fore again, with an expected increase in the demand for high-quality, responsibly grown produce & poultry. Sanitized facilities & employees, secure food-storage facilities, and higher standards are expected to be incorporated into this.

Aggregating lands and using machines to plant and harvest, as well as smart irrigation, productivity can be increased by using the economy of scale, even for small lot holders. Less labour per unit area, along with a thriving community-supported agriculture structure will prove key to maximising the potential of this economy of scale.

Automotive: The Indian automotive industry, which some would argue has been on a downward slope since before the pandemic, has required a change which will positively redefine the industry. During and Post-pandemic, manufacturers and industry leaders need to create digital tools to connect with customers. As has been seen with BMW in India, carmakers need to follow suit and increase their operational efficiency. Car showrooms May become a thing of the past if such tools are effective at addressing all the consumer needs.

Healthcare & Medicine: The current scenario highlights the importance of healthcare, as a pandemic tends to, and advancing our knowledge-based research in this sector. Doctors, medical workers and researchers, all need to have increased support from the government. Startups implementing successful models in metropolitan cities require poliovirus at the state level to incorporate similar structure across Tier-II cities. By mobilizing our resources, we will be able to provide the same expert opinion to an individual in Mizoram, even though the consulting Doctor resides in Mumbai.

Larger resource allocation for the development of virology research centres across the country to ensure the nation moves forward in equal strides across industries.

Real Estate: The industry is more or less expected to stay stable through this time. While it will see itself incorporate changes dictated by the virus, the market is expected to carry itself out, by adapting and understanding market changes and finding the best fit for their industry.

Consumer projects will perhaps become a focal point in the developers’ perspectives with more and more people wanting to move into the home of their dreams, which will be triggered in the post-pandemic period as the need for the right individual space is highlighted currently.

While real estate will remain largely stable, the lack of liquidity, and loss of jobs, coupled with executive denial of rental income, has caused the market to drop. The lower interest rates could still spur the homeless to possess their houses now, with relaxed moratorium offered in lending from banks & institutions.

Travel & Hospitality: An industry that has arguably been highly impacted, if not the most by the pandemic will be witnessing a creative change in their modus operandi.

They will have to ensure higher standards of guest and traveller safety while making sure the businesses still make a profit. We may witness a more digitized hotel and Travel experience in the post-pandemic era, where human interaction is minimized and limited to critical areas.

Organizations will be scrutinized more to ensure adherence to SOP’s, which may also see a strict update to ensure a safe experience. Reduction in work-hours, ensuring sanitation and hygiene measures are more strictly imposed and monitored. While the lay-offs are aplenty, major hotels are still able to generate some revenue and function as quarantine centres.

For Corona Free destinations such as Goa, the damage is worse, as they can only expect instate tourists, who will visit, and stay with family, keeping room occupancy on the lower side.

Airlines/Aviation: Often the first to bear the brunt of an economic downturn, this time around has been no different, some would argue it's only gotten harsher. The pandemic has seen a multitude of airlines terminating employees or placing them on unpaid leave where possible to cope with the effects.

The demand for pilots and airliners will continue to increase as predicted over the next ten years, if not exceed it. The next 10-12 months will dictate an increased demand for qualified personnel and hiring is expected to resume, with the general slump taking anywhere from 2 to 4, unless a vaccine is developed.

Sport, Health & Fitness: Another Major industry hit hard by the pandemic. Organizations, associations, professionals will have to focus on online content for any hope of revenue as their primary sources are crippled. As seen in the health & fitness sector, gyms and training programs are now more computer-friendly than ever, with a focus on maintaining a healthy lifestyle without the need to visit the gym.

Sports clubs and associations will have to take a cue from this and strategize to ensure maximal efficiency in reaching their target audience online. While this is a lot easier for the big sports clubs (think Manchester United, Lakers or the Yankees) but the smaller organisations will face the true challenge of adapting to this change.

Food: I have chosen to discuss this industry separately because of the many implications the progress of this pandemic holds for it. On one hand, most households are opting for home-cooked meals while others still rely on food aggregators heavily. Scrutinizing the kitchen to the delivery method has caused businesses to adopt a higher standard of safety than that currently in place.

The way forward is to ensure that health and safety standards across all food retailers are enforced upon the employees, highlighting the importance of educating one's staff and self.

While it is safe to assume that the economy as a whole will take time to pick its pace up and industries will be forced to adopt policies that ensure continuity of operations and supply chains should situations such as this arise again.

With respect to India, the learning also includes social behaviour norms, which had perhaps not been addressed enough by the government(s) prior to the pandemic. Social distancing is being understood and adapted by most sections of the populace, and habits, such as spitting on roads, and personal hygiene have improved drastically. Citizens who have seen the AQI drop drastically along with a healthy outdoor environment, perhaps the time is ripe to incorporate a Clean Air Act in our legislation.

Sustainability, along with development, needs to be thought of on the same wavelength; and a rise in opportunities and support for social entrepreneurs, tackling current & future crises with omni-win solutions for the grassroots level transcending industries shall set the norm moving forward.

Find out more here.

Get your slice of the $150billion+ global market!

Online food delivery is a process of ordering and delivering food items to the customers at their doorsteps who have ordered their food through various food delivery websites and applications by using their computers or smartphones.

A cloud kitchen is one purpose built for delivering food and no dine-in space, minimizing cost and maximizing returns. Our experts can help you set-up a new kitchen from scratch or help your current one achieve tangible results.

The global food and beverage (F&B) market has seen healthy growth over the last ten years and this is expected to continue. The global online food delivery services market is expected to grow from $107.5 billion in 2019 and to $110 billion+ in 2020 at a growth rate of 4%. The slow growth in 2020 is mainly due to the economic slowdown across countries owing to the COVID-19 outbreak and the measures to contain it.

The market is then expected to grow upward of $150 billion in 2023 at CAGR of around 20%.

The combined entity of Zomato and Uber Eats India (following the former's acquisition of the latter) is expected to corner nearly a 55% market share in terms of the number and value of orders.

Get ahead of the game with the B:N advantage and capitalize on this opportunity.

There exists a large gap between the aspirations of certain influential private organisations and individuals seeking to promote Indian football and their execution in achieving the same. On one hand, we see governing bodies such as the AIFF and its State affiliates committed to developing the sport to achieve a higher standard and understanding of the game in terms of players training and coaches education. In the southern part of the country, there has been a successful implementation of government and private sector initiatives to develop a strong fan base and capitalise on the supporting football market locally. On the other, there exist private individuals masquerading a facade of “developing youth talent and football”, while only seeking short-term profits and exploiting the unaware aspiring footballer, noticeably in the North India region, a lot of organisations can be seen planning exuberant trips to exotic locations with the lure of a future career.

A glaring example of such exercise has been rampant in the Indian industry for at least the last decade, if not more. Students are lured with the dreams of playing for clubs in Elite European leagues, taken to for various trials and football tours only for them to realise that they had no chance in the first place, mostly due to a large number of them not being up to the mark; and for those who were, other factors such as financial viability or regulatory framework barred them from playing even if they did make the cut. This is highlighted further with the following examples of real-life situations and its implications to two individuals, both budding youth footballers, and their experience with the system in place.

As an aspiring goalkeeper in my school days, I took every opportunity to play as part of a team in an effort to get noticed by local scouts & clubs and make my way to a European league. I was graced with the opportunity to enrol at the weekend camps organised by FCBarcelona Soccer Schools in 2012 and 2013 to aid my growth and perhaps even provide an apt platform to grow. Unfortunately, it was disappointing to learn that due to the implications of EU law at the time, I was too late to make the grade. Being from a privileged family, I can say I had other avenues to shift my focus on, but such is not the case for most as highlighted below.

A student, Shubham (name changed), from a prominent school in New Delhi had aspirations to become a professional footballer. He had been training more hours than his peers from a very young age, focused and dedicated himself to the development of his overall game and personality. In an ecosystem which is inclined to stunting development of youth athletes to focus on other, “viable” career options, and exploiting those who dare to dream, he struggled to adapt to a higher standard of playing despite training camps with league clubs across France, Germany & the U.K.

His management perhaps realised his inability to match the standard of the European leagues but continued to exploit him for financial gains and as a poster boy to attract other such young, gullible and aspiring footballers from across the country. Many such children and families, upon realising that there is no career, even in India, end up deep in debt, and with few other alternatives.

Despite organizing parties realizing this, they continue to carry on aggressively marketing such trips by luring young footballers and their families with the hopes of a lucrative football career while continuing to make a hefty profit. A smarter and more beneficial alternative to this would be instead to focus on developing talent from the rural and semi-urban regions to maximise the opportunities provided and aim for long term sustainability of the game. This additionally aids the growth of the region not only as a football hub but also aid in its economic growth.

In order for the above structure to prove beneficial to all parties involved, a systematic training and education set-up is required that nurtures the talents of young athletes while educating and providing them with the basic tools needed to succeed in life in the likely event they do not have a football career. The need of the hour is to set up a structure that helps students unlock their complete potential in the sport in addition to teaching them skills that are interchangeable across industries.

Fortunately, there do exist various ventures and initiatives that are committed to developing talent irrespective of one's economic backgrounds (Josh Academy being a prime example of the same in recent years). Another such venture, as described below, aims to develop talent in a refined manner along with expanding the local football eco-system. Ventures such as these and many more indicate that perhaps the time has come where we stop misleading young minds and instead guide them in a direction that is most beneficial to them and their growth as personalities and individuals.

The Centre for Footballing Excellence has partnered with Shastri F.C. in New Delhi, with aims to bridge the gap between Indian and world football by providing grassroots training to budding footballers; and continue to grow them as players and individuals by developing talent from key regions by setting up remote academies in such areas. Successful implementation of the same ensures that Shastri F.C. is able to succeed as a football club and an enterprise with marketable brand value. In addition to recruiting talent from the local regions and giving them an opportunity to succeed as footballers, they are being educated on the theoretical aspects and strategies of the game.

Furthermore, they are empowered with the tools necessary to succeed as an individual in life and be an upstanding citizen of the country. This will not only help the individual but also aid the development of women’s and men’s football in the country. Football brings benefits to society as a whole, as it is not only about the game itself, but instilling values including teamwork, social development, health, fitness and personal fulfillment.

If we are to truly see ourselves as a football-loving nation, with world-class women and men’s teams on a national and international scale, a change in this mentality is essential to ensure that young, aspiring footballers across the nation, at the very least, get a fair chance at honing their talent without being exploited due to the greed and inherently backward mentality of certain private parties. The football governing bodies of our country and states, in particular, require a healthy and sustaining support from private firms engaged in football training activities to ensure maximal opportunity for upcoming athletes.