Food Tech- The Problem Remains Unsolved

2015-2016 has been particularly harsh on the food tech business. Before I start to express my views, I would like to state the context of the underlying industry, it's state of affairs and consumer behavior

In simple terms, the characteristics of the food industry are that of a very volatile business with a yearly churn rate of approx 15%-20% yearly. Well, that simply means those many restaurants shutting shops each year. I am still sticking to those that are dominantly food oriented rather than pubs or bars.

If we try and understand the cost structure, it's composed of about 25%-30% raw materials and the fixed costs going as much as 25%-30%. So they thrive on keeping fixed cost component low and increasing kitchen and asset utilization. It's a cyclical business, throughout the day with lunch and dinners are when they do 90% of the business that essentially is 6 hours of the day or about 25% of the total available time.

Some places essentially maintain same pricing structure for Dine IN and Delivery but I feel considering the economics of a kitchen (which could be a base kitchen with extremely low fixed cost) these should be different. The three things that essentially define a place are Food, Delivery/ Service capability, and raw material prices.

Food for thought. Image Credit : Kumar Anurag 

                                      

Let us take food as a product and most of the things are sort of peripheral, It is alive product and its half-life is let’s just say 30-45 min which means, it has a taste, it has a certain look and feel, it needs to be served fresh, at the right temperature and needs to be served quickly as the quality starts deteriorating with time. One thing or one line which would describe the consumer behavior associated with food would be, that he is hungry and a hungry customer is an angry customer, you got to take care of him be it fast service or quick and efficient the consumer preferences keep changing so you have to keep pace with it and of course the price has to be right. Essentially these factors restrict the catchment of the outlet to its immediate 3 Km and an extended catchment of 5 Kms

Now if you call yourself a tech company trying to solve the food industry problem and not concentrating on the basics you won’t cut it. So the opportunities do exist and they would be, considering the churn the outlets are ever hungry for publicity and to reach a wider audience there is always an opportunity for good marketing platform, they want control over raw material costs and need to standardize it using Technology and automating the manufacturing . Since its just 6 hours they do 90% of the business( well don’t take me for my word , look up to any restaurant on Google local business and the smart folks which are tracking your cell phone will tell you with a graph for example the ever famous Natural’s ice cream in Connaught Place CP  does 70% of its business between 9PM to 11.30PM and I don’t need to look at their books to figure that out) , the asset utilization isn’t smooth and lot of potential to improve this.

Credit : Natural's Icecream-CP,New Delhi-Popular Times : Credit Google.com

 Efficient delivery of a live product is another area. They end up dealing with multiple partners with multiple payment terms and payment cycles (raw material, delivery, ordering) there is a potential to solve this as a problem. Since the customer is s volatile when hungry J there is an opportunity for a tech to solve it and make the experience more uniform and smooth. There are problems in plenty when it comes to restaurant staff one of the major being attrition and as you make things tech-oriented considering that involves training . So the problems are in plenty lets see how things how can we solve them.

Different companies have positioned themselves to solve one or the other problem.

In the next blog post, I would take up Zomato which I admire the most & see how it has been able to ace at all fronts and continue to do so with shrewd business sense and strong execution capabilities.Will follow it with Bite Club of  which i "was" a fan.