Can Ola Ride The Gravy Train?

By buying Foodpanda’s India operations, the cab aggregator re-enters a bruising, cash-guzzling sector

- Sayan Chakraborty

RIDE-SHARING SERVICE 

Ola is trying its hand at food delivery for a second time, buying the India operations of Foodpanda for a measly $40-50 million. Ola’s previous attempt at food delivery with Ola Café came a cropper in 2016, when it shut shop barely after a year of operations. While Ola Café focussed on delivering food fast, the company seems to have gone back to the traditional business model with Foodpanda that puts an emphasis on offering customers a wide array of choices.

Bhavish Aggarwal, the chief executive at Ola, says in a statement, “Foodpanda has come to be a very efficient and profit-focussed business over the last couple of years.” Once mired in controversies around corporate governance, Foodpanda India significantly shrunk its losses to ₹45 crore in FY17 from ₹143 crore the year before, while its revenue increased by 64 percent year-on-year to ₹62 crore.

The food delivery business is traditionally viewed as a cash guzzler, with companies spending significant cash to incentivise consumers and buy their loyalty using offers and discounts. Besides, with an average order value of ₹300400, food delivery firms struggled to make money with the 10-15 percent commission they charged restaurants on each order. As a result, a number of companies—Yumist, TinyOwl, SpoonJoy and Dazo to name a few— have folded up over the past few years.

Experts, however, claim that food delivery startups have emerged wiser from the slump, charging restaurants a higher commission and consumers a delivery fee to reduce cash burn. And Ola has sniffed an opportunity in the sector that, according to RedSeer Consulting, is poised to grow at a compounded annual growth rate of 60 percent between 2016 ($300 million in gross sales) and 2021 ($2.5-3.5 billion).