Ola downscales Foodpanda; goes for lay offs and restructuring

Till January this year, reports had detailed out Ola’s plans to scale down Foodpanda and focus on cloud kitchen business instead. Confirming all the assertions and speculations it seems that Ola has significantly scaled down its food delivery business, to refocus on cloud kitchen.

You heard it right. Ola’s second attempt at food delivery, after unsuccessful Ola Cafe of 2015, is facing a gradual downturn after mounting losses and months of struggling in the highly competitive market that requires a constant money outflow with marginal returns.

In numeric terms, food delivery business fetches Ola a 20% commission via Foodpanda as the 40% margin is divided equally with the restaurant partner. In cloud kitchen business, the entire average margin of 30-40% goes into Ola’s pockets, as pointed out by Mint.

The order figures of Foodpanda have capped at 200,000 orders a day during August last year at the time of deep discounting practices. Now the orders have dropped down to 5,000 a day, for the company acquired by Ola in December 2017 for $40-50 million, and received $200 million worth extra investment. For perspective, Swiggy and Zomato clock around 1.1 million orders a day.

FY18 anyway had seen Foodpanda's losses took a 5.1X jump to Rs 227.96 crore while the revenues only slightly (17%) increased to Rs 72.85 crore.

These factors, along with the clarity that Ola cannot afford to empty its pockets into food delivery like Zomato, Swiggy, and UberEats, the company has minimized the operations under food delivery business. Marketplace model is almost off as most restaurants have become unavailable. 40 employees have been laid off. 

Other sources say that these employees have pulled out of Foodpanda and are being transferred to other verticals as a part of the restructuring process.

First the entry level employees were informed and then the on-ground operations team. The ground team has been dissolved completely, but the senior management has been retained to oversee cloud-kitchen business.

Majority of the 1,500 delivery personnels’ contracts have been terminated.

For the delivery of food prepared in the in-house cloud kitchens, Ola is also in talks with Zomato and Dunzo to relist these outlets on their platforms. So far, the company has three cloud kitchens - Holachef, acquired in October last year, Great Khichdi Experiment, and FLRT.

Few more cloud kitchens are to be added to this list in upcoming future, as per Mint’s sources.

As per industry sources, currently, 50 plus kitchens are operating to provide varieties of khichdi, rice bowls, and a range of desserts and shakes.

Various own brands like The Khichi Experiment, Flrt, Lovemade and Grandma’s Kitchen are running in Bangalore, Delhi, Mumbai, Pune and Chennai.

The company is constantly hiring people with culinary experience to wor in the in house kitchens and is also looking at opening offline stores to strengthen operations.

While scaling up cloud kitchens is also a tricky business, Ola is counting on its user base to help with the same. In hindsight, this was also a support mechanism for marketplace Foodpanda, but we know how that has turned out. Hopefully, Ola will have a better luck with cloud kitchen business, given its history with foodtech so far.

It is unclear whether the grocery plans of the company via Foodpanda are also abandoned. But it is a likely situation considering this would require further heavy and high risk investment in a segment where several deep pocketed companies are already operating, and might create a situation similar to that of Foodpanda's delivery marketplace.

Update: The company has clarified the food delivery and marketplace business is not completely shutting down. The scale has been brought down significantly to improve efficiency, but not completely.

People are not being laid-off, instead the team is being restructured.

 "As part of our ongoing business repurposing initiatives, we are focused on building a portfolio of own food brands and curated food offerings through our fast expanding network of kitchens," said Ola Spokesperson.

The headline and the article has been updated to reflect the same.