Why ride-hailing company Ola fell for beleaguered Foodpanda

Ola

Foodpanda acquisition by Ola on Tuesday came as a surprise for many entrepreneurs, journalists, and food-tech space observers. Foodpanda had been up for grab for a long time, but couldn’t find any takers. The word is that Ola paid less than $20 million for taking over the ailing food-tech company.

Experts observe that the ride-hailing behemoth is making a re-entry into food delivery space, and Foodpanda will give a kickstart to its ambition in the space.

“Foodpanda makes sense for Ola as it struggled to crack supply side in its maiden foray into food delivery space,” says Abhishek Bansal, Co-Founder & CEO of Shadowfax.

Also Read: With 2.4 Mn deliveries a month, Shadowfax eyes to be leader in crowdsourced logistics

During its maiden launch, Ola Cafe couldn’t manage to strike and maintain the partnership with restaurants. The primary driver for the acquisition is to get a hold on restaurants. The Softbank-backed company has a strong logistics capability through Ola Bike.

Ola is taking a leaf out of Go-Jek playbook

“Foraying into food delivery is a smart move by Ola,” says a food tech entrepreneur who had to shut his shop this year. He requested anonymity. “Foodpanda wasn’t able to crack logistics part and that’s why it lagged behind to peers Swiggy and Zomato,” he adds.

Moreover, Ola is trying to follow another Softbank-funded peer Go-Jek. The Indonesian unicorn started with ride-hailing, but in 2015 it forayed into food delivery space. Currently, it does more orders than Swiggy, Zomato and Foodpanda collectively.

Also Read: Zomato versus Swiggy: Who will win the food delivery battle and why?

“Ola has taken a leaf out of Go-Jek playbook,” says Satish Meena, Forecast Analyst, Forrester. However, he also believes that executing Go-Jek’s blueprint in India won’t be easy.

Is Ola following Uber’s footstep?

Another potential driver for Ola’s re-entry into food delivery space is Uber Eats. Its arch-rival Uber had launched food delivery vertical in September this year and currently operational in seven cities. Ola tends to follow whatever Uber does. Uber did bike taxis last year, so did Ola.

But K Vaitheeswaran, a veteran entrepreneur, and author of ‘Failing to Succeed – the story of India’s first e-commerce company’  finds Ola copying Uber is a flawed strategy. “Building relationship with restaurant partners take time and requires dedicated focus. If Ola sees food delivery unit as a long haul game, then it’s fine. Doing just for the sake of Uber’s presence is absurd,” he adds.

Unlike others who see Foodpanda acquisition pivotal in Ola’s re-entry into food delivery space, Vaitheeswaran asks, “Everybody (Swiggy, Zomato and Foodpanda) has access to same restaurant base. How does Foodpanda bring any distinct value to Ola is the larger question?”

Food delivery is set to touch greater heights in coming years

While food-tech was hot during the 2014-15 phase, space turned tepid in 2016 and many startups stumbled upon as raising funds and figuring unit-economics became tough.

The euphoria around food-tech seems to be back now. “It can be gauged by investments raised by Zomato, Swiggy, and Holachef this year,” says Bansal.

According to the Kotak Institutional Equities, the food delivery and takeaway market is set to grow to $29 billion by 2021 with the number of orders going up to 51 million on a monthly basis. There is enough potential to grow in this segment.

Food delivery segment is going to be really big in coming years, and this is why heavyweights like Flipkart and Alibaba are eyeing to ramp-up their stake by investing in Swiggy and Zomato.

Are re-entries into Indian e-commerce space a new way to accelerate topline?

Observers of the space also have a view that Ola’s re-entry into food delivery space is more to do with its topline growth. “Flipkart and Ola’s re-entry into grocery and food delivery are driven by a strategy to accelerate top line. The growth of unique online shoppers is almost stagnant for over past two years. Flipkart and Ola both are grappling to bring new consumers. That’s why they are re-entering into grocery and food delivery,” says Meena.

Importantly, Ola and Flipkart both raised humongous rounds this year. While Flipkart had raised over $2.4 billion in August this year, Ola secured about $2 billion from Tencent and Softbank in October.

“These companies have raised massive capital and now they have to justify their valuation. Flipkart and Ola’s re-entry into grocery and Food delivery are more align to justify their valuation than actual business,” concludes Vaitheeswaran.

With the acquisition, Ola is also investing $200 million in Foodpanda. This is really big bet by Ola. Going forward, it would be interesting to see how Ola’s re-entry into food delivery heats up the overall space.

Comments

1 COMMENT

  1. Possible reasons:
    Delivery Hero wanted to cut his losses.
    Ola got a bargain, but the space is already congested and unstructured.
    Already behemoths like Uber, Swiggy, and Zomato is fighting and it will result in more burn.
    Ola taxi business is already makong huge losses and this move will amplify the losses.
    Possible merger between Xomato and Swiggy, or flipkart would be investing into Swiggy.

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