Food tech startup industry in the midst of a meltdown

Rishma Kapurmoneycontrol.comThe boom in online food ecommerce start-ups seems to be cooling off with some going out business while others are scouting for funds. Recent developments in the space seem to suggest consolidation has truly set in, with only the leading players dominating the segment while others are feeling the heat from low funds, poor structure and lack of management.Recently, Bengaluru-based startup Dazo shut down after being in the business for barely a year, due to lack of funds. This came as a surprise to people as the company was backed by a lot of bigwigs from the tech world.This was followed by news that major player TinyOwl had shut down its operations and laid off all employees, following a shortage of funds.Dazo and TinyOwl are not the only ones that were facing rough weather. A few weeks back, Mint reported that Foodpanda is looking to sell off its Indian arm and had approached three potential buyers . The company, it seems, wants to rework its strategy to compete in the ever growing competition in the sector.Others such as Bengaluru-based SpoonJoy and Delhi-based Langhar are either in the process of shutting down whole or parts of their business.It appears that even more established players have not been immune to a slowdown in business. Reports say Zomato is planning to lay off 10 percent of its workforce worldwide.The consolidation picture becomes clear when one looks at the fund infusion picture. Data from Tracxn, a startup analytics firm, shows that 31 food tech startups have raised USD 172.9 million this year (compared to USD 66.8 million last year), leader Zomato alone has raised USD 110 million.The important question to consider is what makes these food startups different from other startups? Many a times, the startups try to replicate the offline models, which is not compatible with the quick and easily deliverable feature of an online business.What plagues these startups is a faulty working model, technological laggards, knowledge, and finding a permanent place amongst the other portals.While some know the technical aspects of the business, they might just be clueless about laws related to licensing or funding. In an interview with Economic Times, Deepak Shahdadpuri, MD and founder of DSG, said: "Very few teams we saw had the full set of skills we think it takes to succeed. Some had a good balance of tech and food but did not understand the details of food related licensing, safety, and traceability issues."Saswata Shankar De, co-founder of the Hyderabad-based food startup, The First Meal said the biggest challenge for a food startup is the delivery cost that comes with business. "The fight is between how to reduce the cost without compromising on delivery time or services," he said.Founder of Gurgaon-based Bueno, Rohan Arora, told the Times of India that most food delivery startups do not factor in delivery charges into their business model. "If you're working on a Rs 100 price point for a meal, you have to also factor in Rs 50-60 delivery charges. But many startups don't do it in order to acquire customers," he said.De said three things are very important in the food-tech business - food, hyper-local logistics and branding."Almost 80 percent of our business comes from re-purchases, which is directly impacted by the kind of branding one does," De said.Expanding the business becomes difficult when there is so little space to foray into and a large number of competitors. Here, exclusivity makes a big difference in the business. What new can you offer to your customers that others cannot becomes the main question.However, there are various startups that are still hopeful of making it big in the sector. Most of them believe a unique approach and technical as well as finance knowledge will help them sustain the business.Correction: In an earlier version of this story, it was mentioned that food tech start ups have raised USD 11.5 million so far in 2015, quoting analytics firm Tracxn's data. Tracxn has clarified that the figure is USD 172.9 million. The error is regretted