Food delivery firms step up discounts to grow market2 min read . Updated: 08 May 2018, 10:29 PM IST
Though discounts on food orders are here to stay, analysts say free delivery offers may be phased out eventually
Bengaluru: Cash-rich online food delivery companies have raised discounts and cut delivery charges to win market share in an increasingly competitive market, analysts and industry experts said.
The offers are led by delivery platforms Swiggy, Uber Eats, and Zomato, as well as restaurants debuting on them.
In February, Zomato raised $200 million in a fund-raising round led by Ant Financial, and Swiggy raised $100 million led by Naspers.
Both companies, which are in talks to raise more cash, are facing competition from Uber’s food delivery service Uber Eats, started in May 2017.
Uber Eats started with free deliveries for new customers, and later started providing restaurant and city-based promotions.
Swiggy, on the other hand, has cut delivery rates for everyone.
A Swiggy spokesperson told Mint in an emailed response that the company has tied up with Indian Premier League (IPL) to offer match-day discounts.
Zomato is also offering match-day discounts, along with city-specific discounts in Hyderabad and Chennai.
Bhavik Rathod, head of Uber Eats India, told Mint its restaurant partners had expressed interest in discounts, and that the company’s biggest spends were marketing expense in the first few months after launch.
“Discounting for us is more restaurant-wise, and it will be there on our platform for some time. It’s a desirable strategy while operating a marketplace model. Such a model only succeeds when you have liquidity, which means you have to grow all three sides of the marketplace (supplier, user, and delivery person) really fast, and if you don’t, one of them falls behind," said Rathod.
According to Sreedhar Prasad, partner at KPMG Advisory, whenever a new restaurants lists on food delivery platforms, discounts are more out of the restaurant’s need to acquire customers. He added that the platform may also bear a part of the discount offered by restaurants.
“When it comes to new platforms (like Uber Eats,) they have to provide discounts, because the restaurants they list will also be listed in other established platforms… In this case, the money spent is more for customer acquisition rather than discounting," added Prasad.
Although discounts on food orders are here to stay, analysts believe free delivery offers may be phased out. “Free delivery will go out in a phased out manner as seen in the case of e-commerce marketplaces. For matured markets (metro cities), smaller orders might be charged, and bigger orders might have lower or free delivery charges," said Anil Kumar, chief executive, RedSeer Consulting.
Food delivery app users feel that free delivery offers are a better catalyst for placing an order when compared to discounts.
“(Discounts) are available only with a small number of restaurants when compared to the total options. It’s the lesser-known restaurants that are often offering discounts, in a bid to push their sales. The restaurants I generally order from don’t offer the discounts…so I haven’t really benefitted from the discounts being rolled out," said Paul Oommen, a food delivery app user based in Hyderabad.
Online orders and average order sizes have gone up significantly on online delivery platforms, according a recent report by RedSeer.
Daily orders have gone up till 400,000 in Q3 2017, compared with 350,000 daily orders in Q1 2017.
Average order value also increased to ₹ 358 in Q3 2017, compared to ₹ 335 in Q1 2017.
As food delivery companies spend more money in marketing and promotions, customer acquisition cost has gone up to Rs204 in Q3 2017, compared with Rs195 in Q1 2017.