The fight between Indian cab-hailing unicorn Ola and the US-based Uber to grab the market share in India has spilled in the food delivery vertical as well. To lure delivery executives on its platform, Ola-owned Foodpanda is offering remunerations of up to Rs. 50,000 in Bangalore. However, to earn that huge remuneration, one has to work for 14 hours a day.
“It’s been only 10 days since I have joined Foodpanda. Their new scheme promises Rs. 1,680 if we log in for 14 hours a day. While I earned around Rs 1,500 at Swiggy a day, here I expect to earn more than that,” a Foodpanda delivery executive who has signed a three-month contract with the company said.
Till two years ago the food delivery executives would earn an average monthly income of Rs 15,000- 22,000. However, due to market consolidation in recent months, it has almost doubled.
A delivery executive with Swiggy who did not wish to be named, said, “Swiggy hired more people during the IPL season expecting an increase in orders.” But once the IPL season ended, delivery agents at Swiggy started to notice a significant fall in the number of orders. While he is aware of Foodpanda’s new payment scheme, the executive wants to wait for a while to see how it pans out.
Change in the payment model
One of the main reasons for delivery agent’s migration from Swiggy to Foodpanda and Uber Eats is the high number of delivery people that Swiggy hired during the IPL season to cater to the increase in demand. With IPL coming to its end and a huge delivery fleet, delivery executives started to feel the dip in their daily income.
While all food delivery companies calculate remunerations based on the number of deliveries a food executive does, Foodpanda tweaked this industry standard by paying their delivery agents on an hourly basis.
This has a direct impact on their earnings.
For instance, in Swiggy, if the orders are less, the executive earns less even if they are on duty the whole day. Under the current pay model, they earn about Rs 30,000-35,000 a month if they deliver about 25 orders a day.
Now, a lot of delivery agents who were earning less started to think if it would be wise to make a shift.
Foodpanda, which delivers about 30,000 orders daily, plans to increase its order volume by 10X and hire 60,000 more delivery executives in the next two months.
Both Swiggy and Foodpanda is estimated to have about 55,000 delivery executives on their platform.
Analysts point out that it’s not just the competitive salary, but the sheer demand-supply gap that exists with the talent pool in the industry has led to the rise of salaries of the delivery agents. During 2015-16, many of these agents were earning Rs 12,000-15,000 a month, which has now tripled.
The attrition rate of delivery employees in this sector is quite high.
Ujjwal Chaudhry, engagement manager, RedSeer, "As per our research, 40% of the delivery executives have been working with their companies for less than six months. This includes the people who have changed the company and the ones who are new entrants.”
A battle between Ola and Uber
Although Uber has been into food delivery business since 2014, in India it launched Uber Eats in May last year. Since then, Ola has been wanting to enter this vertical and jumped on the opportunity by buying the beleaguered Foodpanda in December last year.
During acquisition, the company promised to invest about USD 200 million in the company. And within six months, it has come up with a strategy to tackle other players in the market by tweaking its delivery executives’ compensation model.
“Ola is trying to use Foodpanda to bet against Uber Eats. Ola wants to increase their market share in the fight with Uber and it will have to deliver best services if the customers were to pick between Ola and Uber,” informed Satish Meena, senior forecast analyst at Forrester Research.
According to The Information, a technology news portal, Uber Eats made around USD 1.5 billion—13% of its total revenue.
As it happened in the taxi industry, many believe that the salary bubble is waiting to burst in the foodtech segment as well. Ola and Uber used to offer as high as Rs 1,20,000- 1,50,000 a month in the initial days during 2014-15. But as the rides started to increase and the driver partners increased on the platform, the average income fell to less than a third.
“Since the companies are getting funding for now, they are burning money on delivery executives. But that is not organic. This bubble will burst soon like it happened during Ola and Uber completion years back,” said Khandelwal.
How is the industry performing?
While 2018 has proved to be a good year so far in terms of investment, every player wants to beat the other in the market. Zomato has seen the latest investment of USD 200 million from China-based Ant Financial in February this year in a Series I round. This year in February and June, Swiggy received a total funding of USD 310 million in Series F and G rounds. These investments came from Meituan-Dianping, Naspers, DST Global and Coatue Management.
This month Ola received a funding of USD 225 million from Singapore based Temasek Holdings. While Uber also received USD 600 million from TPG, Coatue Management and Altimeter Capital.
According to media reports, in 2016-17 Foodpanda reported a loss of Rs 44.81 crore, Swiggy’s loss in 2016-17 doubled from its previous year to Rs 205 crore and Zomato faced a loss of Rs 389 crore. The revenue of Swiggy was almost double of Foodpanda.
According to a RedSeer report, the restaurant industry is estimated to be USD 56 billion and the delivery industry is pegged at USD 15 billion.
The restaurant industry is showing limited growth at 11% while the delivery market is booming at 30% year-on-year growth.