TOP 5 REASONS FOR INCREASING INVESTORS INTEREST IN FOOD SPACE STARTUPS
What we eat is changing dramatically. Or how we eat.
In India, we are passionate about food, even more so now with the rise in consumerism and relatively better incomes. The whole business of variety in food, process and delivery has changed in the last few years. Food space start-ups are changing the way we buy groceries, dine out, host parties, buy drinks and cook our meals. For few of them, the goal is to connect restaurants with foodies, or to create on-demand delivery services or ready-to-cook dinner kits. In others, the goal is to invent new foods.
Online food delivery in India grew by 40 per cent to Rs 350 crore in 2015 and accounted for 17 per cent of the online services market, according to the Internet and Mobile Association of India (IAMAI). Food delivery is a hot trend not just for urban foodies but also for the venture capitalists. Investment in food start-ups rises 93% in 2015. Experts said food start-ups would continue to thrive for another five years. According to analytics firm Tracxn, in 2014-15 financial year, there have been 23 investments totalling Rs 1,060 crore, in the offline F&B space. Food tech companies attracted investments of Rs 585 crore, across 26 deals during the same period. The way VCs are funding startups we might soon start seeing consolidation like in the e-commerce space.
Why the sudden interest in food space ? What is the take over for the VCs who venture into food space ?
- A huge market where the demand raises day to day, for better, healthier and affordable products has sparked the interest for investors in the F&B industry. The more the internet penetrates, more the opportunity for food startups in smaller cities. The size of the opportunity is one of the biggest draws, there is interest just because it ‘s so huge.
- Experts believe the returns on food-related startups will be as high as those of software companies. In F&B, the returns are multi fold.
- New food start-ups are using technology to change the way people buy food, which is fool proof and where data is readily available with the behavioural patterns of the customers. You can customize what you give to the consumer which results in strong brand recognition and loyalty. Happy customers come back often for more business.
- Consumers are interested in sophisticated experiences. Dine outs offer the exact experience the consumer prefers which results in happy and returning customer.
- Lack of large brands catering to the regional taste, which results in space for new start-ups to disrupt by creating such food brands and infrastructure at the right time.
“F&B is different from traditional B2C or technology companies. Here you can build good solid businesses that you can grow organically and deliver 5 to 7 x in returns,” said Ash Lilani, managing partner at Saama Capital.
Kunal Walia from Khetal Advisors adds, “Like every other startup if you have enough passion and a good deal of differentiation then you have a right to win as much as the more established players. Think of organic foods, international cuisines, health/diet food, exactly packed quantities of raw material required for a fancy weekend chef to cook up something amazing . Basically, anything that is part of an aspiring middle class macro and you have enough of a base to build upon then you have a right to the investment.”
“There’s a certain attraction to investing in a food-related company. Everyone has their own relationship with food,” Brita Rosenheim of Rosenheim Advisors says, “so everyone thinks they’re an expert in it.”
The surge in the new age food-tech startup is because of all the above reasons plus the strong fundamentals it presents to the investor community. With that hope, food services are touted to be a $50b market growing at 16-20% year on year.
More food our way. Bon Appetite.