The food tech start up scene in India has fast come out of its honeymoon period. An industry that is as colorful as the ingredients present in a typical Indian household has seen a sudden rise and a more recent sharp fall. Until a few months ago the food tech startup business ideas were the darling of the town, they were being loaded with investments, attracting investors, and more importantly, bringing in millions of dollars.
Much of that cash was spent on rigorous advertisement to chase down the market share and customer loyalty that would guarantee them success.
But as mentioned above, reality is setting in and the dream is over. The pressure has started to get to several of these food start ups and they are reeling under pressure. The pressures that they face are many; how do they keep tabs on the costs that are being incurred, how do they keep the investors interested and for how long before the results start to become visible?
To deal with these issues, some businesses have opted to shut up shop, others have looked to cut down on the number of their staff while a few are reducing their operations or tweaking the style they do business in. Another reason for this apparent downturn in fortunes is that the market just wasn’t big enough for so many businesses entering all at once.
According to a rough estimate around half of the total number of businesses in the food tech business started in the past year. Yet, this doesn’t mean that the industry has suddenly dried up of investment and interest. 19 food tech startups in the current year so far have raised a mammoth amount of around $160 million in total.
All Hope Not Lost Yet
Yet just when it appeared that all hope had been lost and the number of investments in the food tech startups was going down, Twigly which has only entered the market a month or so ago at the start of November, announced that it was getting seed funding worth around $200,000 from a number of angel investors.
Inspired by the US based Sprig, this cloud based kitchen is a joint venture by three partners Sonal Minhas, Naresh Kumar Kacchi and Rohan Dayal. The idea is not a new one with direct food shipment to customers and a central kitchen to cook the food in, but the founders believe that it’s their business management skills and business running acumen that will make the difference.
One of the partners Sonal Minhas was vice president of the venture capital firm SAIF partners where he worked in great depth with the funding of the beverage and the food industry. It is during that time that he decided to take the plunge into the world of food tech startups.
According to the owners, they want their business to be the equivalent of the Yum Brands, a company that is behind the food chains such as KFC and Pizza Hut.
A Period of Consolidation
The most important thing about the seed investment to Twiggy is that it comes at a time when the ebb of investment in India in this sector is falling low. The lack of investment has meant that the startups will instead be looking to consolidate on the investments made or move towards making more strategic investments in the future.
Only earlier this month, a food tech startup by the name of Dazo decided to close down barely a year into its operations. Another company by the name of Tiny Owl Technology has started to cut down jobs and decrease the plans for expansion.
As a result of the downturn in the industry’s fortunes, the period of consolidation has already begun. Leading food tech startup Food panda only recently acquired its direct industry rival Just Eat India. There have also been other instances where the slowing down of investor interest has allowed the larger firms to strategically invest and take over their direct rivals or other important businesses in the same sector.
The key to the start of so many likeminded business ideas was the lack of entry barriers. Today there are about 250 business food tech startups vying for the same top spot. The problem that they all face is that while they may have slightly different models, essentially all of them are failing in their attempts to distinguish one from the other. According to experts, it’s the crowded market place that has meant that corrections were meant to happen.
Principle of Making Profit
According to the founders of the company Twigly, the business has been making profits from the day it started operations. They believe that their aim at the start of the day has been to maintain a healthy bottom. For that they believed the food industry is an ideal place because in their own words the margins in the industry are “anywhere from 50 to 60%”.
Today, Twigly stands as one business model that could lead the way for another food tech revolution in India. The founders believe that the fact that they have a bigger ticket size allows their model to work. On an average their business can ship around 40 orders a day and the average ticket size is usually around $7.52.
The company despite doing well initially is coy on its plans for expansion. It has announced that it plans to expand its operations to Delhi as of now.
While the food tech startup industry is facing an uncertain future as of now, the example of Twigly shows that businesses can survive even in times of a downturn in investment. For that to happen though they need to be able to come up with an interesting business model that can not only win the confidence of investors but also earn profit from day one. An important thing to take into account is that Twigly has experienced market trodden founders at the helm calling the shot, which is important for the success of any business.