An (App)etite for business

At a business park in suburban Mumbai, the office of TinyOwl is just below that of Housing.Com, whose CEO Rahul Yadav has been something of a regular on the business pages in recent times—he first resigned calling his investors not smart enough for him, then withdrew it and then, stunning India’s start-up community, gave all his shares away to Housing’s employees. Like Yadav, Harshvardhan Mandad, TinyOwl’s CEO, is also from IIT-Bombay and in his twenties, representing a new class of entrepreneurs that mobile internet has thrown up. It is however hard to imagine Mandad being impetuous. One of the things gently suggested before the interview is that we don’t take too long on the photo shoot because he would be uncomfortable—he is the kind of man who sits hunched over his laptop from early morning till late night. Mandad looks like that. In jeans and a round-neck shirt, he is gaunt and has the scraggly beginnings of a beard and the appearance of a student at a library the day before an exam. The question that immediately comes to mind, and which I keep for the end, is whether this is how he goes for business meetings. It’s an answer I know already. There is a certain assurance and unpretentiousness in entrepreneurs at the cusp of technology— remember turtlenecks and Steve Jobs.

In February, TinyOwl raised $15 million in its second round of funding. That is Rs 100 crore for a business that is not even two years old and started by young men without any serious work experience. TinyOwl delivers food but does not have a single restaurant or chef working for it. Instead, it aggregates existing restaurants— brings them together under an online marketing platform. In practice, this means customers download the TinyOwl app onto their mobile phones. When they are hungry, it shows them a list of eateries and menus around their location. The order is placed on the phone, the food comes, and TinyOwl gets a percentage of the bill. It is small cut, and right now, the firm doesn’t even charge it. They are colonisers of a new market and that means organising both sellers and buyers and latching them up. If that is done in sufficiently large numbers, profits are expected to follow. What is certain is that the market is there. “Right now, the food delivery market is around $15 billion. It will increase,” says Mandad.

The last few years have seen enormous waves of venture capital investment in e-commerce and then m-commerce. There was the online retail wave, with companies like Flipkart and Snapdeal getting astronomical sums; then there was the taxi wave, with funds flowing into companies like Ola. Some say India is now at the start of a food wave. Within food, ordering and delivery is the flavour of the season. Traxn, a start-up that monitors venture capital investments, came out with a market overview of ‘Food Tech in India’ last November. It found that $125 million had been invested in this space so far and last year alone more than 60 companies had been founded. Many of these are apps for food delivery and ordering.

In India, Foodpanda is the largest player in food ordering and has been on an acquisition spree, having brought smaller start-ups like Just Eat and TastyKhana. It operates in 200 Indian cities and has 12,000 restaurants on its internet platform. A multinational, it has raised over $200 million in funding so far. Half of that came in a recent round and a large part of it will go in expanding its Indian operations. The company employs a thousand people, a workforce that will soon go up four or five times that number. “The market size [for delivery services] is $14-15 billion and we are just beginning to scratch the surface,” says its CEO Saurabh Kochhar.

Kochhar is an entrepreneur himself but in another online space. He started Printvenue, a personalised printing cum gifting start-up. It became successful, and he got funding from a venture capital firm called Rocket Internet, which is also Foodpanda’s main investor. When the firm needed a CEO for its domestic unit, Rocket got Kochhar to head it. He says Foodpanda always knew that the food delivery space had done well outside India and while there were smaller players around for some time here, it was only in recent times that the business achieved traction enough for larger scale operations. “People were still figuring out what the best model was to do this. With apps and the convenience of ordering on the phone, people have become open to the idea. And with that space opening up, everybody has started to realise how big the space is,” he says.

The biggest food tech start-up India has produced is Zomato. Valued at $1 billion, it was started on the premise of assisting people who wanted to eat out locate restaurants and view menus. Zomato too has just got into the food ordering space and its founder and CEO Deepinder Goyal sees it is as a natural evolution. In 2008, he was working at Bain & Co when he noticed how office people would queue up at the cafeteria at lunch hour to skim through restaurant menus. ‘So, to save everyone the trouble, I decided to scan these menus and put them online on an office intranet. Soon, this intranet website started getting a fair share of hits and I realised that a viable business could be built out of scanned menus. That is how Zomato, then known as Foodiebay, was born,’ he says in an email interview. There were a number of factors that worked for the site. Young professionals were increasingly not cooking at home. ‘At the time, there was no other exhaustive database in the market with scanned menus that allowed you to make a decision on what to order,’ he says.

Today Zomato is in 22 countries and lists over one million restaurants in over 10,000 cities. From a search and discovery platform, it has moved on to table reservations, in-app payments at restaurants and, in its latest move, food ordering. It has just rolled out an online ordering feature in Delhi-NCR with 1,000 restaurants and will soon take it to Bangalore, Mumbai, Pune, Hyderabad and Kolkata. ‘Over the next few months, we are aiming to offer this feature with over 10,000 restaurant partners in India,’ he says.

Mandad is 25 and of true middle-class stock. His father is a banker, his mother a housewife. He comes from a village near Pilani and was ranked No 37 by the IIT entrance test, which got him Computer Science at IIT-Bombay, probably the most coveted stream in India. Of the five founders of TinyOwl, four are Computer Science graduates of IIT-Bombay and one a chemical engineer.

Mandad didn’t plan on getting into business. During his student years, he was keen on research but took a job at FutureBazaar’s e-commerce division during placement season. He was there for five months and that was when he decided to be an entrepreneur. “What had changed was the ecosystem. Mobile internet is a big change that has come in the last few years. When we joined IIT, it was not there. When we passed out, it was there and now it is picking up,” he says.

It took time to get the founding team together, and at first, they tried their hand at an aggregator app for black-and-yellow taxis and autos with government permits, and then retail merchants. Neither worked out because the idea ran into potential regulatory hurdles and a market that was indifferent to such technology. Then they came to food, and it seemed to be the right time at the right place for it. They decided on creating a social network of sorts over menus to assist users in picking what to eat. “We wanted to create a decision layer or social layer over the menus. We tied up with some restaurants and sent them comment cards to collect data to see what is working there. Then we figured out that there is no business model in it. Because neither the customer nor the restaurant will pay,” Mandad says. But they were certain that they wanted to be in the food space because the opportunity was vast. There was no proper system for home delivery and the eating-out culture was shifting. And so they decided to start something for food ordering.

They didn’t have any capital but didn’t need much either in the beginning. Mandad had some money from his brief stint at work, and his father took a loan. “Initially we just survived on what we could. If we needed Rs 10,000, we arranged for it. Two of us used to take tuitions for IIT students,” he says. One co-founder joined McDonald’s as a call centre executive and worked there for around two weeks to understand the process and gain consumer insights. They studied chains like Domino’s that are efficient in delivery. In October 2013, they raised Rs 65 lakh in angel investment and started building their first product—a food ordering app. Things moved fast after that. “In November, we started building, and in mid February we launched our first beta with one restaurant. On 8 March 2014, we launched our public version with 40 restaurants. In April, we raised our first round from Sequoia and Nexus Venture Partners, around $3 million. Then we did a full pilot with around 100 restaurants. In June, we started expanding across Mumbai. Right now we have around 3,000 restaurants in Mumbai,” he says. TinyOwl is now going to Delhi NCR, Pune, Hyderabad and Bangalore. It has 550 employees right now and do around 2,000–3,000 orders a day, a number expected to shoot up.

Mandad’s vision of the company is one that goes beyond ordering food or being an aggregator of restaurants. As the base of customers increases, it will get consumption patterns and feedback. This will also give it data on how restaurants compare when it comes to food and service. TinyOwl is envisioned as a highly personal food assistant of sorts. It will know tastes, interests and one’s previous history to make suggestions and then place an order. “It is that space we want to go,” says Mandad.

In February, when TinyOwl received $15 million in funding, it was from a group of venture capital firms led by Matrix Patrners. Gourav Bhattacharya is the man at Matrix who focuses on the mobile internet. He is also from IIT- Bombay and knew of Mandad as a junior. Other VC firms like Sequoia and Nexus had already invested in TinyOwl, and Bhattacharya used his college network to get through to him.

Bhattacharya says that mobile internet took off in India over the past few years for a number of factors. Data started getting cheaper and data networks started getting better; second, cheap smartphones came into the market. “The smartphone base in India is 120 million. And we are adding 20-25 million new [units] every quarter. Because of mobiles, there are two models that are immediately enabled. One is the aggregator model, where you are basically aggregating a whole bunch of different restaurants and you are able to do location- based ordering. So online ordering is basically a location-based service and such services are only enabled through mobiles. That has started. The second thing is that internet-first restaurants have also been enabled by the mobile. These are restaurants that essentially do not have any physical infrastructure except for a kitchen.” He compares TinyOwl to another Chinese start-up called Ele.Me that Matrix China has invested in. “The last round [Ele.Me] raised was $350 million. They are up to about a million deliveries a day,” he says.

There are different models around food ordering. Zomato does not have its own personnel deliver the food, letting restaurants take care of that. Others like TinyOwl and Foodpanda have their own men stationed to take food from restaurants to the customers, allowing more control over delivery. There are also other interesting variations.

For example, Travelkhana, whose target is the customer on board a train. Its app lets travellers order food from a list of restaurants, and it’s waiting when they reach a station. Pushpinder Singh, CEO and founder, Travelkhana, calls the idea ‘food on the move’. “As a market place, people on the move require a lot of services and we focused on food as a starting point. We do about 3,000 orders every day,” he says. He estimates the potential of this market at $3 billion annually. “The simple calculation is that there are 1.2 billion travellers travelling an average of 770 km over 18 to 19 hours of journey. We are looking at about quarter to two billion meals, the average meal price being $1.5-2,” he says. Travelkhana is also looking at bus passengers.

Foodbox is another unusual player that combines aggregation of restaurants and food on the move, but Satish ChamyVelumani, its founder, is clear that his is not a delivery business. He calls the concept a ‘food court in a box’ or an ‘intelligent restaurant’. At places like railway stations, bus stops and airports that travellers frequent, he puts up outlets with a machine that dispenses dishes from different restaurants in the city. “The restaurants make the food and package it themselves (with packaging machines provided) in their kitchen at every mealtime. A logistics partner picks it up and drops it off at the outlets and my outlet staff would load the food into these dispensers and we are ready for sale. Customers come and order using touchscreens. The dispenser picks it up, reheats it and sends it out,” says ChamyVelumani.

Right now, Foodbox claims about 1,300 orders daily from one store. It has two stores, though, which will become four soon. The firm operates in Chennai, is about to open a store in Bangalore and has a year-end target of about 12 outlets with a presence in Mumbai as well. Foodbox has only a limited number of restaurants as partners, the idea being for these to get higher volumes. And because the restaurants have no fixed costs like labour or rent when it sells through Foobbox, they are happy to allow the dishes to be sold at the same price or even lesser. He cites the example of a restaurant called Charminar, whose Hyderabadi biryani it serves. “They have only two outlets. They sell easily 200-300 meals a day through us, which is as good as one of their outlets. That is the beauty of the model. It gives restaurants additional outlets without their incurring any capital costs. Foodbox is not just another guy who picks up and delivers to customers. It is an actual outlet for [restaurants],” he says. Foodbox makes its revenue through a transaction fee.

Another food tech venture going beyond ordering and delivery is Yumist, started by Alok Jain, who used to be chief marketing officer at Zomato. Yumist not only delivers through a mobile app but also cooks its own food. It has an entirely different market in mind—the daily tiffin. “We are not in the restaurant side of things where an average person eats once in ten days at a restaurant. We are in the market of daily meals, averaging three times a day. This particular market, which has been serviced by fragmented players like the dabbawaala, tiffinwaala and corporate canteens, has not seen any change in the last 40-50 years,” he says. The idea had been with him since 2007, when he was in Bangalore and friends working in offices would always crib about the food they got there. People were looking at eating options in offices and these were limited to a Rs 70-75 thaali provided by a corporate caterer or subscribing to a dabbawaala by paying a monthly Rs 1,500- 1,800 upfront. “The quality left something to be desired and there was no choice in terms of what you had to eat. There is not a single F&B brand that has been created in this daily meal space. There is not even a single national player. But this is pretty much what an Indian eats everyday. So the idea was, ‘Can we create an F&B brand at a conjunction of price, quality and convenience that this market has never seen?’” Yumist only offers lunch as of now and has a rotating menu of two meal options which are not repeated for a couple of weeks. It is present in Gurgaon and will be in Delhi soon, says Jain, with plans for other cities as well.

A problem or contradiction for businesses that revolve around food ordering is that most have no control over the food. Most restaurant owners are not tech-savvy and don’t see significant revenues in getting on to a platform. It is therefore hard to get them to change. Mandad says they get around the problem by creating a feedback loop of rating and reviewing. So there are stats on display that show how often a restaurant delivers on time and the customer can take such information into account. Restaurants will take time to get used to an external agency telling them that they need to do things better. TinyOwl gives restaurant owners smartphones loaded with a custom-made app to take the orders, but with technology keeping tabs on their efficiency, it often becomes an irritant for them. “So many times people say ‘I don’t understand these things’ or ‘This rings too much’. Whenever the order comes, it says, ‘Order from TinyOwl’, and it irritates them. They shut down the mobile phone then. And when we go to enquire, they say ‘I don’t want to do it’,” says Mandad. “All these issues are there, but you can solve them.”

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