India’s online food tech industry is expected to double in two years, on the back of a growing user base facilitated by increasing smartphone penetration and increasing acceptance by consumers. A report by Google and Boston Consulting Group has said that the industry will register a compound annual growth rate of 25-30% and by 2022 the market size will grow to be US$ 8 billion, from $3.5-4 billion in 2019.
The report was based on a study in which around 1,500 respondents across 12 cities in India took part. Interestingly, the main reason for recurrent use of food ordering apps was the variety of cuisines on offer and not discounts. Nearly 35% respondents claimed that they were attracted by the different types of cuisines, while 16% felt the discounts were the main draw, and 13% said they found convenience to be the driving factor.
The study found that peer or network advocacy (52%) played a critical role in drawing people to try online food ordering for the first time. This was followed by advertisements (19%),which emerged to be a strong driver in metro areas and among the higher income groups across the country.
The time spent by consumers on food apps has also more than doubled from 32 minutes per month in 2017 to 72 minutes per month in 2019. The ordering frequency will likely grow by 18-20% while average order values may go down by 5-10%.
The report also suggested that consumers have common impediments that hinder adoption. A fifth of the respondents stated a lack of trust in the app as the main barrier to usage.
Delivery charges (18%), food quality concerns (13%) and lack of customization (10%) are other reasons why customers have, so far, not experimented with online food ordering.
Apart from the food delivery biggies Zomato and Swiggy, India’s food tech sector has multiple startups which follow different business models ranging from cloud kitchen (Faasos, Ola’s Foodpanda, Freshmenu, Innerchef, Box8) to table reservation platforms (EazyDiner and Magic Pin). The food tech industry now has a presence in more than 500 cities in India and it continues to evolve by attracting more consumers to its fold.
Investment in food tech platforms has also boomed in the past few years with food delivery firms attracting over $2 billion since 2014, followed by $364 million invested in cloud kitchens and $54 million poured into online table reservation platforms. Overall the market has raised nearly $2.5 billion since 2014 — the highest annual totals being $1.7 billion in 2018 followed by $268 million in 2019.
Zomato and Swiggy currently dominate the online food delivery market in India. Zomato last week announced it has acquired Uber’s food delivery business in India in an all-stock deal of nearly $350 million and Uber will have a 9.99% stake in Zomato.
With the Uber Eats acquisition, Zomato hopes to upstage market leader Swiggy and strengthen its presence in South India, where Swiggy is the leading player. The battle for market share between the two companies is expected to intensify.
The report claimed that India’s internet population is expected to grow from over 600 million in 2020 to more than 800 million in 2025 even as online spending will increase from $40-50 million in 2020 to $130-150 million in 2025 — growing at a compound annual growth rate of around 25%.