Food tech has issues, but don’t call it a bubble

After a few months of effusively praising every funding in the so-called food tech space, the conversation has taken a rapid 180-degree turn as people go out of their way to declare a bubble and declare that e-commerce in general will soon burst.

Which is, frankly, alarmist and tends to miss the highs and lows unfolding before us. The most talked about problem right now is of course the problem with TinyOwl.

The food ordering platform recently made headlines when mass layoffs were followed by a dharna by former employees, who were holding the co-founder of the company hostage.

The company hasn’t helped matters by releasing a tone-deaf statement that speaks in the most vague terms of the difficult steps towards a big dream. It’s a nice dream for the founders, yes, because the company is funded for a large sum of money, but for the hundreds of people laid off, it’s not a difficult step but a life-changing nightmare.

What the TinyOwl story proves, more than anything else, is that the model adopted by delivery companies – which is what the bulk of food “tech” startups are – is not necessarily sustainable. Margins are thin, total order value is quite low, and customer acquisition is expensive. In other words, these companies make money if customers come back and place orders – without discounts. Unfortunately, few – if any – of the companies in this space were actually offering anything beyond VC-funded discounts, and so customers kept jumping from platform to platform, looking for the best offers.

Worse still, rampant fraud is an unfortunate feature of doing business in India, as most e-commerce companies here find out. Things were particularly bad in the case of Foodpanda, a company that has seen recurring management changes and was allegedly mismanaged, according to a Mint report.

But these problems concern individual companies and must be recognized as such. Food delivery is definitely a space that needs to be better organized, and there’s still plenty of room for growth and improvement. But when the bubble conversation starts, people immediately start making connections that may not be entirely justified.

So when Zomato laid off a number of employees (mostly in the US), followed by news that its Zomato Cashless payment system was shutting down, people started saying that it was getting ready to go. self-destruct. Things didn’t help when a letter from Goyal to employees, explaining that sales targets had not been met by the company – for the first time in five years – was leaked, fueling speculation over the health of the business and whether or not it will close soon.

That there are problems with Zomato is no secret. It’s a work culture that’s not one most people can fit into – the company is apparently incredibly demanding and doesn’t seem to have a concept of work-life balance, according to alumni employees who informally spoke to us about it. question. It’s definitely something Zomato should try to fix, but it doesn’t exactly mean the company is shutting down.

There have also been a number of high-profile exits from the company lately, but our sources blame it not on Zomato’s activities, but on the personalities of the people in charge. Again, if this is true then this is definitely something Zomato needs to look into and should try to fix. But it is also not an indicator in itself of a company in difficulty.

And Goyal’s letter? If you go beyond the hype and read the actual letter – published by Business Insider, you don’t see evidence of a bubble, but rather an attempt at efficiency, instead of making lots of money and spending then excessively, as you would expect from companies in the middle of a tech bubble.

If you want to ask about Zomato, we should ask them about the apparent flip-flops the company has been making lately. Goyal in particular had often argued why entering the food delivery business in India was a bad idea – and the struggles faced by companies like Foodpanda and TinyOwl seem to bear witness to this. Yet, Zomato also entered the same business with Zomato Order.

He also often talked about not wanting to enter the US market, as Zomato had no real differentiator for the market there. Yet with the expansion of Urbanspoon, Zomato has become a major player in the market. Zomato co-founder Pankaj Chaddah called the acquisition unexpected, saying the decision was tactical, once the opportunity presented itself.

Zomato also frequently stressed the importance of cashless payments, until it shut down last month, although that’s something the company doesn’t seem to have completely abandoned, as it wants to bring this back with POS and table reservation systems. Even with these missteps, Zomato’s overall arc looks positive so far.

It’s becoming clear that there are a variety of different problems that food tech companies are facing that they will have to solve or they will die. This is true for all companies in this space, whether you’re talking about TinyOwl, Foodpanda, or Zomato. But that’s not the same as a funding bubble that spawns bad ideas and will lead to a market-wide correction, which sees thousands of people lose their jobs while a host of companies do bankruptcy.

Even TinyOwl – the one with the most troubled history on this list – isn’t shutting down just yet as it raises even more funds; its new “operational efficiency” will no doubt help it look even more attractive to investors. So don’t call it a bubble, because that’s missing the point, and more importantly, letting some people off the hook for gross mismanagement.