Why Rapido moving into food delivery make sense:

  • 2W is still their core revenue generating business, note revenue not GMV, and we all know the uncertainties around 2W regulations. It makes sense to not be dependent only on 2W mobility and have more revenue lines
  • When it comes to pricing strategy they say that you should gradually raise your price until your target customer literally laughs — that “laughter” marks the upper bound of what the market will bear. Food delivery businesses have been doing the same. They have been layering more and more fees over time. And now it has reached a state where users are unhappy, restaurants are cribbing about commission, and order growth has slowed. So the WHY NOW is clear for Rapido. They have executed this playbook in 3W and 4W ride hailing businesses and have got meaningful marketshare.
  • Food delivery business has less regulatory uncertainty. Far fewer regulations too. Restaurants have been doing food delivery for ages. On demand platforms have made it a scalable VC backed business. This means that you have it easy in a lot of things. Driver onboarding becomes easier. Food delivery is moving goods, and not people. So fewer steps in onboarding drivers.
  • Fewer steps, easier onboarding, faster time to get onboarded to the platform and start earning means that driver supply can be increased and later the same fleet with additional onboarding steps can start doing ride hailing too.
  • Every company is struggling with driver acquisition and retention. This means the more you help your drivers be occupied, the more you help them earn, the higher the likelihood of retention. You don’t want your drivers to be busy only during peak office hours. You want them to be utilised during lunch hours too. A lot other drivers multi platform anyway. So a driver churning midway during the day because they get busy with other delivery apps might mean they not coming back to your app later. This means supply retention for the entire day becomes harder.
  • More use cases for your users. Once you acquire them, you can spread the CAC across more products. CAC payback time decreases. You can also afford to pay more CAC because your LTV becomes higher, as users’ usage frequency becomes higher as they now are using multiple products.
  • Rapido has raised a big round recently and they have money in the bank. While Swiggy and Zomato are both public companies and won’t be able to cut their take rate because they will want to show revenue growth over the next few quarters, especially Swiggy which is quite new to the public markets. Another reason for WHY NOW.

Why it won’t be as easy for Rapido to win marketshare in Food delivery as 3W, 4W ride hailing:

  • 3 sided marketplaces are far far harder to run than 2 sided. Operational complexity increases by a lot.
  • Onboarding restaurants require a sales team. You need more Ops people. Your Opex increases by a lot.
  • Most food delivery businesses anyway don’t make money in the food delivery part. 25% take rate leaves extremely low profit margin (if any). So how do they make money? Ads. For Ads you need enough demand. Enough users. You need a merchant ads team, need to build your ads platform. Ads can only be run at scale. So it will take sometime for Rapido to make money from this business.
  • Delivery time matters. Reliability matters. When Ola acquired food panda they were giving ice cream in 9 Rs. But what is the point of ice cream for 9 Rs if it comes in 1 hour and in a melted state. If you don’t get a rickshaw you cancel. Booking conversion rate for most ride hailing companies in India will be close to 50%. Like you reach your destination 1/2 of the times you press the ‘Book Ride’ button. Here you need 99.99% reliability. You need the food to arrive whenever you order. Else you churn.
  • You can’t pool orders when there is not enough demand. The only way to cut delivery cost is by pooling orders. Yes, it is not fun to see your delivery person deliver two orders, and yours being the 2nd one, but without that cost of delivery will be even higher. Running a reliable profitable food delivery business is playing the on demand marketplace game at Hard difficulty.
  • This means you need to have enough margin to run the business well. Subscription just does not let you do that. Remember not 2 sided, this is not just about drivers, you have 3 stakeholders now: Customer, Driver, and the restaurant. So you can’t just change your business model, attack the take rate of the incumbents, and hope this is enough to gain meaningful market share.

It will be interesting to see if Rapido can make a dent in the food delivery space. Even global behemoths like Amazon have tried and failed in the past.