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India’s Growing Online Foodservice Industry

The penetration of e-commerce and online food delivery services has accelerated since the pandemic, and this has also been the case in India. We believe that consumer habits have changed significantly over the last two years, as many were forced to stay home under strict lockdown and quarantine measures. As such, the pandemic encouraged many non-users to experience the convenience of online platforms for the first time, and many are likely to continue using them even after the pandemic is over.

While India’s e-commerce landscape is currently dominated by foreign companies like Amazon and Flipkart (owned by Wal-Mart), online food delivery is a duopoly market between local players, namely Zomato and Swiggy.1 In fact, Zomato’s IPO last year made it one of the first consumer internet companies to be listed in India, riding on the robust growth of the online foodservice industry.

India is expected to be one of the fastest growing online food delivery markets, driven by strong growth in its foodservice industry, as well as opportunities for online delivery providers to gain a share within that industry. Total food consumption is a USD$670 billion market in India, of which less than 10% is food consumed away from home, while 90% of food is consumed at home.2 Accordingly, foodservice is currently a USD$65 billion market in India, and is expected grow 9% each year to reach USD$110 billion by 2025.3

Foodservice industry growth tends to be highly correlated with GDP growth. Additionally, when it comes to experiences, younger generations tend to have a higher willingness to spend. We believe this dynamic could further accelerate India’s foodservice industry growth. In China, for example, foodservice share reached 58% of total food consumption, higher than many other developed countries.4 This may be due to the high female workforce participation rate in China, or also because Chinese consumers have a higher willingness to spend on experiences such as dining in restaurants and watching movies in cinemas. India has an even younger demographic profile than China.5 In fact, we have witnessed many young cohorts of Indian consumers having high willingness to try new experiences and also being very aspirational. In other words, the total addressable market (TAM) is less of an issue in countries like India with a populous consumption-driven economy. There is ample demand as long as companies can provide quality products and services.

In India, food delivery accounts for approximately 25% of the overall foodservices market, while online delivery accounts for about 5-10%.6 Globally, online food delivery has taken significant market share from the offline food delivery market, with the share of online rising from 8% in 2011 to 58% in 2020.7 China has the largest online delivery market of any country. In 2018, China accounted for 45% of the global online food delivery market, while its share of the total global restaurant market was just 24%.8

Rapid growth in China’s online delivery market is thanks to the country’s high urban density and low labor costs. This has allowed the industry to gain scale and created a virtuous cycle to become more efficient, as food delivery by nature is a very thin margin business. Delivery expense is the single biggest cost for the industry, so having a low labor cost structure is critical for the industry to develop. In China, food delivery expense is RMB 7 (approximately USD$1) per order, while Uber Eats and Delivery Hero costs USD$4-5 per order.9

Similar to China, India also has the two key pillars to support growth in its online delivery market. India has the second largest dense urban population after China and even lower labor costs.10 For Zomato, delivery costs is around Rs 45 (approximately USD$0.6) per order.11 Thus, India has a fertile foundation for its online delivery industry to maintain robust growth over the coming years.

The Indian market is much more open compared to that of China but there could be government support to grow local champions in the country. For example, foreign retailers are restricted to conduct only 1P (first party) retail business and the same also applies to online retail. Retail and food delivery is a local business. Thus, we believe that local companies will have a competitive edge in developing not only food delivery services, but also leverage into other retail or local services industries. COVID-19 has accelerated the growth of various online businesses in India. Thus, it will be interesting to see many more innovative Indian internet companies growing and moving to IPO in the next few years.

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1. Bernstein Research, August 2021

2. Jefferies, May 2021

3. Ibid.

4. Ibid.

5. United Nations, 2019

6. NRAI, RedSeer, Bernstein estimates, August 2021

7. Bernstein, August 2021

8. Euromonitor, Bernstein analysis, May 2019

9. Company data, 2021

10. World Bank, Bernstein analysis, May 2019

11. Company data, 2021


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