Food based startups are on roll. Daily we hear name of few new startups which come on the horizon of Indian startup ecosystem. They shine within limited time and give a hope of being next big thing of the ecosystem. But then time tests everything.
FS Team has brought for you the exclusive analysis of FoodHotLine – a Gurgaon based food-tech startup providing solution for healthy and affordable food option. It went on to expand its base to entire Gurgaon within just one year. Its marketing tactics were fabulous. It had everything for being a success. And what more – it was in line to get a funding of $150k. That was the time when reality check forced its founders to think about the future strategy for FoodHotLine. Quit was what they opted for.
FoodHotLine – How it was born?
FoodHotLine was born by the problem faced by one of its founder – Affordable, Hygienic and Tasty Food availability in Gurgaon, India. No doubt thousands of options are available for foodies in Delhi-NCR but the combination of affordability, hygiene and taste is difficult to find. Street food is affordable and tasty but for health conscious people, this option is not appreciable. To spend 200-300 bucks per person in a good restaurant for the majority of middle class population is not affordable on a daily basis. So, he decided to solve the problem of healthy food in Gurgaon by his startup “FoodHotLine”.
FoodHotLine – Typical Timeline
- November 2014 – Concept of “Affordable, Hygienic and Tasty Food: was brought into reality by “FoodHotLine” in Gurgaon.
- March 2015 – Received first round of seed funding ($ 50k ) and enhanced the operational excellence.
- August 2015 – Further round of seed funding ($ 150 k) initiated with investors
- November 2015 – Instead of expanding their business, founders decided to shut it down.
FoodHotLine – Brilliant Combination of all the Factors required for Success!
[A] Founding Team – FoodHotLine founding team was the perfect combination of all the required skillsets to plan and execute a startup. The key skillsets required to run a tech-food startup are managerial skills, marketing skills and technical skills. The details of founding team is as follow-
- Sanjay Tudu –Mechanical Engineer by degree, Graphics Designer by interest, Marketing Expert by experience and a die-hard chaser of dreams
- Priyank Jha – Chemical Engineer by degree, Manager by nature and Born Entrepreneur
- Shubham Sanghal – Manager by degree and Entrepreneur by choice
- Akshay – Electrical Engineer by degree, computer and coding addicted by interest
[B] Seed Funding – FoodHotLine arranged the required money for initial setup by them and then received the seed funding of around $50K in March’15 that was sufficient enough to run the operation for couple of years at no profit generation.
[C] Startup Concept – The concept of FoodHotLine was as follow:
- Problem Solved: To provide healthy homemade food to people at affordable price – 100 Rs/Person.
- Target Customers: Bachelors and office going singlets and couples who thought Rs 200/person was too much of spend and wished to avoid little unhealthy food for lunch or dinner.
- USP: The concept of FoodHotLine was different from aggregators. They had kept few cooks who made food as per orders from customers. Quality of food was as good as homemade food.
- Different from Others: FoodHotLine did not follow the route set by all other food based startups. They did not follow the aggregator based model. Main reason for the decision was – aggregator model was tight in terms of margin.
- Faster delivery: They had tied up with RoadRunnr for order delivery. That ensured a time-bound express delivery to customers.
[D] Marketing Strategies – The marketing strategies developed by FoodHotLine were suitable enough for capturing the market–
- Social Media – FoodHotline used social media to reach the maximum number of targeted people at optimum cost involved in marketing.
- Local Outlets – This was the fantastic marketing concept opted by FoodHotLine. They marketed their startup through local kirana and grocery stores. FoodHotLine team used to convince the brick and mortar store owners for helping them acquire new customers. In return these store owners were given some commission.
- Targeted Canopy Marketing – To capture the market volume of office personnel, FoodHotLine did the targeted canopy marketing at those offices where strength of bachelors was more. It helped them in acquiring the loyal customer base.
- Press Media – To capture the nearby market volume, they used press media by distributing their pamphlets in daily newspapers.
[E] Revenue Model and Scalability – The revenue model of FoodHotLine was quite good in terms of its break-even point.
Fixed cost involved in the setup of FoodHotLine could be categorized in following verticals (approximate analysis) –
- Kitchen expense = 50,000 INR per month
- Salary of Supporting Staff = 80,000 INR per month
- Office expense = 30,000 INR per month
- So Total Fixed Cost per month = 160,000 INR
If the profit margin on each order is considered as 40 INR on average, the number of orders required per day to reach break-even point = 160,000/(30*40) = 133
So the profit on orders above 133 was the actual saving to FoodHotLine.
The scalability of the concept was quite large in terms of targeted market of the city as well as other locations. They covered whole Gurgaon just in one year of operations.
[F] Series A Funding Opportunity – Within one year of operation, FoodHotLine attracted enough customer traffic and Team started to look for expansion plans. They searched for the investors in the market and were successful in getting few investors on-board for series A funding.
Why Instead of Going for $150k Further Funding, FoodHotLine was Shut Down
After running their business model for 12 months, FoodHotLine was on the edge of getting $150k further round of funding. But, instead of going for it, founders decided to shut it down by analysing following factors –
[A] Stiff Market Competition – Market competition that FoodHotLine faced was quite high and was one of the major reasons of its shutdown. Cash burn tactics of direct competitors like Yumist, Faasos etc were sufficient enough to attract consumers and kick small players out of the market. Yumist was distributing food at 1 Rs per order or huge discount. Same cash burn tactic was being used by Faasos to attract consumer. Food aggregators like TinyOwl, FoodPanda, Swiggy were also attracting consumers by giving huge discounts, so consumers were getting high value items at lower cost.
Cash burn tactics of well- funded startups are unpredictable in terms of time span and percentage. So to burn the available and further funding amount for luring consumers and giving hundreds of explanations to investors for these marketing strategies to face the competitions was not a good option in front of FoodHotLine. Founders decided against this kind of marketing tactic as they were not sure about the extent to which market leader could burn the Cash.
[B] Demand Fluctuations – Another major driver was the demand fluctuations. Someday the numbers of orders were quite high while on the next day, the quantity was getting quite low. So it was affecting the everyday planning and leading towards massive wastage. For example, if the targeted marketing like Canopy was done well on a day, the numbers of orders were reaching up to 500, the next day due to less marketing it was only 150. So the food preparation done in by any of the forecasting method was getting wrong and leading towards wastage.
The major factor to run food startup is forecasting the upcoming demand and aligning the inventory levels as per need. For startups, it’s difficult to align the processes with forecasted market demand unless it has made a very loyal and firm customer base. So, instead of wasting food every day till a predictable loyal consumer based in built, founders decided to quit.
[C] Consumer Attitude towards Food – Consumer behaviour and attitude towards available food options was also a major reason of FoodHotLine shutdown. A lot of orders were getting cancelled or not initiated by people because they can’t wait for 30 mins for healthy food. Rather they prefer to go for the easiest option.
Convincing consumers on daily basis for becoming health conscious and making them understand the lead time concept (delivery time) was difficult for founders.
[D] Cost Concerned Mindset of Customers– Target of FoodHotLine was to reduce the food order cost by providing the quantity sufficient for one person but people were still concerned for the order price. Instead of spending 100-150 bucks for their single order, people would prefer to go for cheaper options like street food. Here in the battle of Cheap and affordable food choice, Cheap won and FoodHotLine was forced to think about its marketing and targeted customer strategy.
All these factors pushed founders to think about the future of FoodHotLine. And instead of going for more hard work and cash burn marketing, team decided to shut the shutter.
[E] Investors Mindset for Profit – Investors invest their money with major motive of getting profit out of it. Earlier experience of founders was in the same track only. They were being chased continuously to generate as much profit as possible. It was challenging to convince investors to spend the money on concept, competition and survival. So instead of repeating the same experience with $150k, founders decided to shut it down.
FoodHotLine Shutdown- Learning from 12 Months Journey
Dedicated hard work of 12 months has created a new chapter of learnings for the founders of FoodHotLine. These learning shall be kept in mind by upcoming entrepreneurs while starting and execute their startup –
[A] Market Competition Analysis – The success of startup is directly dependent on the level of market competitions. So analyse the market competitions on the following verticals –
- Direct players that are working in same domain as of your startup
- Indirect players those are aggressive enough to capture the different business verticals
- Marketing strategies of the competitors to infiltrate the market
- Cash burn tactics of the competitors
These factors would help you in making decision about the areas where your startup should build its base. Those areas, where competitor penetration is less, are always a better for starting a business.
[B] Consumer Behaviour Analysis – To manage your inventory levels is quite dependent on the consumer behaviour towards your product. Product with long shelf life can be procured and stored for longer period while for short shelf life products; optimization is required as per consumer behaviour –
- For initial study, check for the source of motivation of consumer buying
- During execution, check for the frequency, motivation and pattern of consumer buying Keep a track on the data which you are building about the customer behaviour
It would be the best guide for forecasting and inventory planning.
[C] Customer Relationship Management – A proper channel of CRM must be deployed to mold the consumers’ mindset as per your projections. Since the numbers of startup, working in same domain, are increasing day by day, so the winning strategy for entrepreneurs is to keep their customers motivated towards their product. Following CRM strategy should be kept in mind for product based startups –
- Reach out your targeted consumers as soon as possible and formulate plans to retain them
- Get the needs of consumer and align your offers accordingly
This would act as a problem solver for customer requirement. Customer would be more than happy to get your service.
[D] Keep Patience for Success – Success never comes in single day. Facebook, that we find today, was not built in a single day. So keep patience for success. Just to cover one single city it took FoodHotLine almost a year. So keep patience, give your best and work continuously with the same passion every day to get sure shot success.
First of all, Team FS appreciate the efforts made by FoodHotLine founders and their level of success within a year. We appreciate the courage of FoodHotLine Team to come in front and share their shutdown story and learning in a public place like FS. Hats off to you guys. It requires a lot more courage to share your failures experiences with other people than telling the success stories.
Starting a business is easy. Anybody could give it a try and it will run fine for one day. To run a business for a month it requires a sound planning on every front – market competition, target customer, customer behaviour, marketing tactic, support services, CRM. To run business for one year it needs inventory planning, forecasting, market trend analysis, better customer acquisition tactics and some plan about how to avoid cash burn tactic. To run a business for more than one year it needs a founder who lets his idea live to its potential unfazed by the challenges posed by the market, customer and time.
Stay tuned with FS Labs to know more.