Ride-hailing majors Ola and Uber have reduced their focus on the online food delivery market, leaving it for Swiggy and Zomato to dominate the sector.
Uber has halved the annual allocation for its food-delivery business in India to USD 90-120 million, sources told Economic Times.
It was reported earlier that Ola has pulled the plug on ramping up Foodpanda as a marketplace. It has plans to focus on building its private label brands, which include The Great Khichdi Experiment, Lovemade and FLRT.
Uber’s move comes a year after the San Francisco-headquartered cab aggregator earmarked its highest budget globally to the India market to scale up its food business.
It recently debuted on the New York Stock Exchange and its shares have had a rough first week of trading, dipping as low as 36 USD from their listing price of 45 USD. This is the biggest first day dollar loss in US IPO history
“Swiggy and Zomato have deep pockets to burn cash on customer discounting for the foreseeable future, and in this environment, Uber doesn’t believe the current unit economics of the delivery business will be viable to double down in India,” said a person familiar with Uber’s plans told Economic Times.
Uber’s growth in terms of number of orders too has flattened to 13 million orders a month, compared to a few months ago when the business was growing at least 25% every month.
In contrast, Zomato and Swiggy clock about 30-35 million orders a month. Foodpanda’s orders are about 3-4 million a month, sources said.
India’s food delivery market is expected to hit USD 2.5-3.5 billion by the end of 2021, according to estimates by RedSeer Consulting.
Kartik Hosanagar, professor of technology and digital business at the Wharton School, told ET that last-mile logistics is an operations-heavy, low-margin business. “I simply don’t see how the market can sustain so many parallel micro-logistics networks.”
For both Ola and Uber, ride hailing growth too has declined to an annual pace of 20-30% to 3.5-4 million in 2018, against 57% growth seen in 2017, industry analysts said.