Such orders currently account for 10%-20% of the revenue of such start-ups, but could cross 60% in the next six months, say experts
Food-tech start-ups such as Yumist, Bite Club and InnerChef have started serving institutional customers such as Google, Citibank, Snapdeal, Yatra and Oyo Rooms across Delhi, Gurgaon and Bengaluru in an effort to build scale and improve cash flows.
Such orders currently account for 10%-20% of the revenue of such start-ups, but could cross 60% in the next six months, according to analysts and executives in food-tech firms.
Operating margins, excluding the cost of customer acquisition, range from 20-30% for food-tech companies when they sell to individual customers, but double to around 40-60% when they cater to companies.
And customer acquisition costs, which typically range from ₹ 60 to ₹ 150 and make most food-tech companies unprofitable, are almost zero in institutional sales (where it is the institution that reaches out).
Yumist piloted institutional sales with 25 companies in Gurgaon in January and has now expanded to South Delhi and Bengaluru.
In Gurgaon, it has identified a larger kitchen (12,000 sq ft), more than thrice as large as its current one, and will shift by March. In most cases, companies reached out to Yumist, with word of mouth helping, according to co-founder Alok Jain.
Yumist is using delivery companies such as Roadrunnr (Carthero Technologies Pvt. Ltd), Opinio (Moon Internet Pvt. Ltd) and Shadowfax Technologies Pvt. Ltd to help it serve corporate customers.
It serves individual customers through 120 riders of its own.
InnerChef plans to add six kitchens to its existing four to serve corporate customers. BiteClub has started a separate section on its site for “large orders".
Unlike Yumist and InnerChef that run their own kitchens, BiteClub sources food from home chefs. It takes care of collection, packaging and delivery.
Demand is more predictable in the institutional business and logistics costs are lower, according to co-founder Prateek Agarwal. BiteClub operates in South Delhi and Gurgaon.
The pressure to become profitable may be responsible for this shift of focus, experts say.
“They (food-tech companies) are not expanding beyond markets and are going where there is a predictability of demand and higher margin. In B2B (business-to-business) they get a fixed visibility of the upcoming orders and the margins are higher," said Harish H.V., partner at consulting firm Grant Thornton.
“It is a race towards profitability, that’s where the pressure is coming from. It is difficult for start-ups to approach investors currently without having a clear revenue stream," said Sudhir Singh, a partner at PricewaterhouseCoopers.
Still, the new focus has meant new competition—entrenched corporate caterers. And the business is fragmented.
“The success of these start-ups will depend on how well they are able to expand their kitchens without burning too much money, manage delivery, and maintain the quality of food," said Harish.
The food-tech space was very popular with investors in 2014 and part of 2015, but interest started drying up in the second half of last year. There are at least 179 food ordering and delivery start-ups in the country, according to Tracxn, which tracks start-ups.
As much as $150 million was invested in the sector in 2015.
Zomato Media Pvt. Ltd, the most well-funded local food-tech start-up with about $223 million in its kitty and Sequoia Capital-backed online restaurant aggregator Tinyowl Technologies Pvt. Ltd, which has raised $20-million so far, resorted to job cuts in late 2015.
Internet-first kitchen Spoonjoy (Emvito Technologies Pvt. Ltd) was acquired by hyperlocal delivery start-up Grofers (Locodel Solutions Pvt. Ltd) and restaurant aggregator Dazo shut shop.
Yumist (Yumist Foodtech Pvt. Ltd) raised $2 million led by Ronnie Screwvala’s fund Unilazer Ventures in December. InnerChef (InnerChef Pvt. Ltd) raised $1.66 million from Phanindra Sama, founder of RedBus and Vijay Shekhar Sharma, founder of PayTM, among others, in September. Bite Club (Ecstasy E-Ordering Pvt. Ltd) counts investors such as venture capital firms growX ventures, the Phoenix Fund and Powai Lake Ventures. It last raised an undisclosed amount in December.