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Is India Becoming A Proxy Foodtech Battleground For Chinese companies?

Sep 22, 2018 by The Passage Team
Is India Becoming A Proxy Foodtech Battleground For Chinese companies?

The Indian foodtech sector has suddenly become the new investment hotbed.

The industry has already attracted USD 473 million in the first half of 2018, compared to USD 134 million raised across the whole of 2017, a report by research firm Tracxn says.

A 2017 report by consulting firm Red Seers says that the foodtech sector size in India is expected to double to USD 2.5- 3.5 billion by 2021, in terms of Gross Merchandise Values (GMV). The industry is witnessing a 15% year-on-year growth.

The sudden revival in investors’ interest in the sector after the brief lull of 2015-17 indicates that the industry has finally stabilized and is moving towards market consolidation.

However, hidden behind the data is another interesting trend. Major Chinese companies are aggressively competing against each other to expand their presence in India. In fact, a large chunk of the investment raised in H1’18 can be traced back to three major Chinese companies—O2O giant Meituan-Dianping (美团点评), and tech behemoths Alibaba (阿里巴巴) and Tencent (腾讯).

After its India debut with a USD 100 million investment in Swiggy, Meituan-Dianping returned to pump in another USD 210 million in Swiggy’s Series G round held in June.

In February this year, another online food delivery platform Zomato raised USD 150 million from Alibaba’s financial arm, Ant Financial.

The Chinese giant tightened its grip on the food delivery platform after buying another 6.66% stake in the company from the Bombay Stock Exchange-listed Indian tech company Info Edge for USD 50 million.

Earlier this month, the Bangalore-based ride-hailing platform Ola raised USD 50 million from Chinese investors Sailing Capital and the China-Eurasian Economic Cooperation Fund (CEECF) for a combined stake of more than 1% in the company.

In 2017, Ola had raised around USD 1.1 billion from a clutch of investors including the Chinese tech major Tencent Holdings. Interestingly, Ola had acquired food delivery platform Foodpanda India from its German parent Delivery Hero AG in an all-stock deal in December last year.

Further, China’s largest travel-booking site Ctrip, which had invested USD 180 million in the Indian online travel site MakeMyTrip back in 2016, is planning to invest about USD 100 million in Zomato, recent media reports said. The financing round is expected to go up to USD 400 million with participation from other investors. The deal, if successful, will be the Nasdaq-listed Ctrip’s second investment in India.

Rohan Agarwal, engagement manager at RedSeer Consulting, which monitors the foodtech segment said, "The foodtech sector has been receiving a lot of funding in the last 8-10 months and it’s not just one player, but all the players."

“The foodtech sector and the current boom in it are attracting foreign investors including Chinese majors,” he added.

Why does the Indian foodtech tempt China?

According to industry experts, India’s consumer behaviour in the food delivery market is similar to that of China.

Reiterating the same, Dev Lewis, a research associate at the Hong Kong-based think tank Digital Hub Asia said the Chinese players are expanding because they have seen the growth in China.

China’s food-delivery market was estimated to be worth USD 37 billion in 2017, growing from USD 25 billion in 2016. The vast market has two prominent leaders-Alibaba owned ele.me and Tencent-backed Meituan Waimai-the food-delivery service of Meituan Dianping. The two players equally share about 85% of the market between them.

In China, food delivery is an important source of traffic in the O2O service, driving 26% of the overall market cap. According to KrASIA report, there was 976% overall growth rate in deal size in the Chinese internet takeaway food & beverage market.

Driven by high repeat ordering behaviour that leads to brand value and customer retention, many of the companies are now trying to become a one-stop solution for all hyper-local deliveries. Chinese food delivery companies are into grocery delivery, medicines, lodging, taxi booking and movie ticketing and more. In addition to this, more and more traditional restaurant chains are opting for the new online food ordering and delivery modes.

On the similar lines, Swiggy plans to enter the hyper-local delivery service in India.

“India ticks all the boxes of China market – a large mobile-using, urban, working population with very little time in their hands. So food delivery fits perfectly in the context,” Dev Lewis said.

Dev further asserted that the Chinese players have insights on user behavior, demand pattern and other information about the Chinese market. These insights of business can be used for the Indian market as well.

“Banking on their experience in China, they (the Chinese companies) can allocate capital and employ data, insights, algorithms and apply that to India, Moreover nobody wants to lose the Indian pie” Dev commented.

However, when compared to China, India’s food-delivery market still has a long way to go. For instance, while Meituan clocks up nearly 22 million orders a day in China, Zomato and Swiggy receive less than 1 million orders a day, Agarwal estimates.

Has the Indian foodtech sector come of age?

The recent hyper funding in the Indian food delivery business is similar to that of 2014-15. Compared to the USD 500 million funding during that period, the sector attracted a paltry USD 80 million worth of investment in 2015-2016.

After 2015, the industry went through a lull till 2017. In these years, more than ten food delivery startups crashed out. Interestingly, Zomato which started its food delivery business in February 2015, laid off 300 people in December 2015, about 15% of its workforce. However, Only Zomato and Swiggy survived the phase.

Food delivery startups that shutdown between 2015-2017 include TinyOwl, SpoonJoy, Eatlo, Eatonomist, Yumist, EatFresh, Dazo, Zupermeal, Just Eat among others.

When foreign investors pumped capital and restructured the market from mid-2017, the food-tech segment started showing signs of revival.

Post the restructuring and consolidation, India’s food delivery segment is led by five prominent players- Zomato, Swiggy, Foodpanda India, Google Areo, and UberEats.

Bengaluru-based Swiggy leads the stack with a 35-38% market share, followed by Zomato at 25-30%, LiveMint says quoting a RedSeer report.

Three of these are backed by Chinese investors, which shows that the competition between Chinese firms will be played out in India.

“So after this battle for data, when the Indian market matures, they (the Chinese investors) want to be seen as early investors with a good stake,” Dev Lewis summarized.

(With inputs from Jing Cai, an intern at The Passage.)

The Passage Team

The Passage is committed to creating in-depth content over technology industry across Asia with a focus on emerging startups in the technology, healthcare, education, food, tech, travel & mobility segments.

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