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  • Vinay Nair

Will Amazon's Foray into Food Delivery Satiate its Appetite?

Updated: Aug 27, 2019

More and more Indians, across all top metros and a rising number of non-metros, are digging in to the spread offered by a plethora of food delivery apps at their fingertips.

As the market widens and profits soar, it seems that global e-commerce major Amazon is also getting hungry for a piece of the food pie.


Going by the latest reports, the tech multinational is looking to woo restaurant partners by settling for commissions much lower than the industry standard, to whisk them away from the grasps of exclusivity contracts with Indian unicorns Swiggy and Zomato, currently the leading players in the space.

Amazon India has already experimented with a two-hour grocery delivery service with Prime Now, and while that venture has not exactly left its coffers overflowing with cash, it has ensured the existence of a ready fleet of delivery partners, which can potentially be leveraged for the company to carve out a niche of its own in the food delivery space.



The company's food dreams will reportedly be channeled through the Prime Now app itself, under a head called "Amazon Restaurants".


The service is scheduled to be launched in the city of Bengaluru in October, around the festival of Diwali, a smart move considering that the southern metro is often touted as the food tech capital of India, accounting for more than 16% of all app-based food delivery orders in the country. Even though residents of the non-metros are increasingly ditching their pots and pans and reaching for their smartphones to grab a bite, Amazon does not plan to expand its services to those cities just yet. Instead, it plans to focus on customers across the top metros for starters, given they account for nearly two-thirds of the country's total order volume.


Amazon's calculated entrance seems to be rather well-timed and craftily strategized. The recent times have seen more and more restaurant partners protest against the heavy discounts and offers peddled by the delivery apps as a way to get the order volumes soaring, often at the cost of their providers' profitability.


In fact, very recently, the Federation of Hotel & Restaurant Associations of India (FHRAI), has threatened a #LogOut campaign to protest the infeasible discounts being imposed upon hapless restaurant owners by food tech companies they have tied up with. Amazon's introductory plan of taking lower commissions: 6-7% instead of the 15-17% usually charged by most food tech majors; effectively sweetens the deal for aggrieved restaurant partners looking for a way out of their exclusivity contracts.


Another aspect that gives Amazon an edge over the established players it plans to take on, is its logistical efficiency.


As a RedSeer Report from 2018 notes,

"food tech will be ruled by players with high-quality captive delivery players".

The report explains:

"It is becoming increasingly clear that food tech is becoming more and more of a logistics play, restaurant discovery is not a deep competitive advantage. There are clear trends in customer and seller satisfaction supported by the better delivery speed and compliance that vouch for the superiority of the captive delivery model in Indian market."

Clearly, with most food delivery apps offering a varied, yet comparable selection of restaurants and menus, the success of such a service often comes down to speedy deliveries without logistical glitches, something that can be fulfilled more easily with a sturdy logistical pipeline in place.


Ever since its entry into the Indian market, the company has penetrated deep into the territory, establishing close to 100 fulfilment centers across 13 states in the country. Its processing units are reportedly spread wider, covering around 19 states, with thousands of Indians on its payroll. The company's established presence in the country gives it a ready-to-use infrastructure to take advantage of when it comes to overtaking homegrown food tech startups like Swiggy.


As for companies like Ola and Uber that planned to cash in on the upward trend of the food tech market by diversifying from ride hailing to food delivery services, they are reportedly being considered by Amazon for potential partnerships or even acquisitions. Ola's Foodpanda, and Uber's UberEats have both found themselves at the negotiating table with Amazon India recently, although no clear deal has come to fruition as of yet.


In terms of new trends in the food tech space, the recent times have seen an increasing presence of cloud kitchen services, that require low infrastructural investments and can build a business around the pipelines already established by food delivery partners. Companies like Faasos and FreshMenu have been flourishing by sticking to that model and are seemingly enjoying quite the dream run. Since these cloud kitchens have less to lose than traditional restaurants, it is often a win-win partnership for both the kitchen and the delivery service, something that Amazon has clearly realized. It is already working to onboard several cloud kitchens, including Freshmenu, Rebel Foods, Eat.Fit and more. It is also targeting popular fast food chains like KFC and Domino's, in addition to regional outlets.


If planning to take a big bite out of the food delivery market wasn't enough, Amazon is also considering the option of delivering medicines and beauty products using the same logistical pipelines to amp up its profits. If we look at food delivery alone, Amazon must keep its discounts and offers competitive to have a shot at dethroning Swiggy and jostling Zomato out from its second spot.


Will the low commissions be palatable enough for restaurant partners to reach for a second helping? Even if it does, Amazon will have to continuously evolve smarter strategies to keep both restaurants and deal-hungry foodies coming back for more.

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