Venture Capital

Amazon’s food-delivery experiments

Read more at economictimes.indiatimes.com

Hi, Apoorva here. This week I did a status check on Amazon’s food delivery business in India which is over a year old now.

At the outset, the idea of a Big Tech player, with a massive war chest entering a duopoly market signalled more cut-throat competition in the buzzy food delivery sector.

But over a year into its limited launch, the e-tail giant has been mostly operating under the radar in 70-odd pin codes in Bangalore.

Several partners who operate restaurant chains said they saw around a minuscule 1% of their total delivery volume come from Amazon Food.

Read: Why Amazon still lags behind Zomato and Swiggy in food delivery

Interestingly, our story coincided with a full-page ad by Amazon Foods on its latest discounts (we don’t stake any claim to this).

Amazon Ad

Amazon Food so far has engaged in discounting, a prime tool used by delivery companies to win market share, only sporadically. At least one restaurant partner said that they were not even aware of the 60% off on their brand and that Amazon is paying this out of its own pocket. This could mean that the company has not entirely given up on its food delivery dream in India.

On to today’s discussion, Amazon’s entry into food delivery is not new to the behemoth.

The company has dabbled with food delivery and shut shop at least twice outside of India.

It has always been a late entrant in these geographies and struggled to develop a clear differentiator to win market share.

US stint: Amazon launched Amazon Restaurants at its home base in Seattle in 2015. It was available for Prime members free of charge and promised to deliver in under an hour.

To gain market share, the company tried various tactics, including introducing Price Guarantee, which promised to not mark up the menu prices and even refund customers the difference if they discover a higher price on Amazon’s service. After ramping up aggressively in its initial days, Amazon’s food delivery plans in the US did not amount to much.

Four years later, when it shut shop on its food delivery business in mid-2019, it had barely made a dent in the market. A few months before it announced its closure, Amazon’s market share was paltry.

DoorDash, Postmates, GrubHub, and UberEats occupied over 90% of the market in food delivery, according to a report by Edison Trends, a market research firm.

Amazon had said then that it was doing so to focus on grocery delivery, according to a New York Times report, which seems to be its focus now, even in India.

United Kingdom: When Amazon entered the food delivery business in the UK in 2016, the market was dominated by Deliveroo and UberEats. Interestingly, UberEats had entered the country only three months before Amazon made its entry. The service was for Prime subscribers only who could pay £1.99 to have food delivered within an hour from over 200 London restaurants, according to The Verge.

Two years later – in 2018 – Amazon closed its food delivery business in the UK. It turned out it had not entirely given up on the sector.

Enter Deliveroo: Less than a year after Amazon Restaurants shut shop in the UK, Amazon led a $575 million funding round in Deliveroo. The deal ran into trouble with the regulators for its potential anti-competitive consequences.

In 2020, the regulators approved Amazon’s minority purchase of 16% shares in Deliveroo. For a fleeting moment, it may have seemed that, unlike its own delivery stints, the Deliveroo bet may have paid off well for Amazon. After all, as of Feb 2021, Deliveroo stood third with a 26% share in the food delivery market in the UK.

A Deliveroo delivery rider cycles in London

But, when Deliveroo listed: Hailed as one of the biggest IPO since 2011 in the UK, the Deliveroo stock proved to be a nightmare for investors as it plunged 26% below its listing price on opening day, wiping almost £2 billion ($2.8 billion) off Deliveroo’s initial market capitalisation.

Deliveroo’s share price has somewhat recovered after larger food delivery player, Delivery Hero’s recent investment in the company.

How’s India different? India seems to be the only country where Amazon is actively pursuing its food delivery ambition. While Swiggy and Zomato’s commissions are in the range of 15-30%, some restaurant partners have negotiated a commission in single digits with Amazon.

Despite this huge advantage, listing on Amazon Food is not the easiest, say restaurant partners, who had to go through strict hygiene audits before they got the green light. These stringent multi-point checks to onboard restaurants have created a supply-side constraint.

There is also a feeling among restaurant owners that Amazon is not serious about its food delivery bet yet. One restaurant partner requesting anonymity said that, unlike Swiggy and Zomato, there isn’t an assigned relationship manager in touch with restaurant owners on a regular basis.

“We are hoping that they also scale,” said one food chain owner with a pan-India presence. “With their current user base across other Amazon offerings, they are a good entrant in the space.”

Restaurant owners, tired of deep discounting and high commissions, are waiting for Amazon to come in with guns blazing.

Let’s move on to other big developments of the week


ETtech DEALS DIGEST

Grocery

Tata Digital‘s potential investment in Dunzo is stuck over a critical contour of the deal, where the Bengaluru-based startup does not want to give majority control, sources told us. The hyperlocal company is also simultaneously in active discussion with financial investors to raise anywhere between $100 million and $120 million at a valuation in the range of $500-$600 million. Also read our recent deep dive on Tata Digital’s plan to integrate various online businesses and launch a super app.

■ Used cars marketplace Cars24 is in final negotiations to close a $300-350 million financing round led by existing backer Yuri Milner’s DST Global, along with participation from new investors like Falcon Edge, Carlyle Group and SoftBank Vision Fund, multiple people aware of the matter told us. The firm is likely to be valued at $2 billion post funding, a jump from over $1 billion valuation in November last year.

Postman overtook BrowserStack as India’s most valued software-as-a-service (SaaS) startup this week after raising $225 million at a post-money valuation of $5.6 billion. The round was led by existing investor Insight Partners along with participation of new backers such as Coatue, Bond Capital and Battery Ventures. The San Francisco- and Bengaluru-headquartered company was earlier valued at $2 billion a year ago when it raised $150 million financing led by Insight Partners.

SaaS Unicorns

■ Business-to-business (B2B) manufacturing platform Zetwerk has secured $150 million in a Series E funding led by D1 Capital Partners, people with knowledge of the development told us. With this capital raise, the company is being valued at $1.5 billion, making it the latest startup to join India’s startup unicorn club. Zetwerk was previously valued at around $600 million when it raised $120 million capital led by US-based Greenoaks Capital and Lightspeed Venture Partners in February this year.

■ Hundreds of senior Paytm executives are converting their employee stock options into shares before the digital payments major launches one of India’s biggest initial public offerings later this year. Cumulatively, these shares could be worth more than Rs 600 crore based on the Noida-based company’s most recent valuation, people aware of the matter told us. Read our recent deep dive into what a successful public listing could do for Paytm.

Here’s a quick look at the top funding deals of the week

Deals Digest

OTHER BIG STORIES BY OUR REPORTERS

Followon Funding Graphic

More than one in five startups that became unicorns this year have already raised fresh funds at higher valuations since joining the $1 billion club. This is markedly different from the previous generation of unicorns, which took much longer to grow their valuations.At least 30 firms are learnt to have submitted their proposals, indicating that the number of applicants could increase before the September 30 deadline for existing and new non-bank firms to apply. Meanwhile, RBI has rejected a demand by the country’s payment gateways for exemptions on select new regulatory norms that are set to prohibit merchants from storing card details and payment operators from offering one-click checkout service to consumers from January 2022.

Bhavish Aggarwal

Aggarwal said that the government has done its job of creating a local engineering and manufacturing ecosystem for automobiles, and it was now up to the industry to make investments and turn India into a global EV manufacturing hub.The pre-bid conference for the rollout of the second phase of the project, which is expected to link 3.61 lakh villages by August 2023, recorded heightened interest from private sector players on the back of rising digital adoption due to the ongoing pandemic.Genpact, whose largest employee base is in India, has been conducting close to 100 experiments with various kinds of work models, including a mix of virtual, outsourcing and in-office models.

That’s about it from us this week. Stay safe and get that jab. 💉

Read more at economictimes.indiatimes.com

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