Online Food Delivery: Transforming Consumer Behaviour and Market Trends

Dining out at a restaurant used to be like an event for families and friends until a few years ago. Restaurant-like meal deliveries were largely restricted to foods like pizza, burgers and Chinese food. However, this has changed in the recent past due to the emergence of multiple online food ordering and delivery platforms as well as changing food preferences and consumption patterns of people across the globe.

India has not been any different story and has witnessed these changes with the rise of various online food delivery aggregators and cloud kitchens over the last decade. It has reshaped the way people discover new restaurants and order food. This transformation has also been driven by the changing and evolving consumer preference, technological progress and rising middle class population.

Rise of online food delivery

As per a Research and Markets report, India’s online food ordering and delivery market was valued at US$ 28.3 billion in 2022 and it is expected to grow at a CAGR of ~27% to around US$ 117 billion by 2028.

The emergence of user-friendly apps and technology-enabled driver networks unlocked ready-to-eat food order and delivery as a major category in India in the last decade. Further, the changing consumer expectations contributed to this growth. Some of the key reasons behind the rise of online food delivery market in India are -

• Increased digital penetration: One of the prime reasons behind the rise of the online food ordering and delivery market in India is rapid digitalisation. Affordable smartphones and data plans have resulted into a large number of Indians with access to the internet. People therefore can now conveniently order food through mobile apps or websites without the hassle of visiting or calling the restaurant. As the number of consumers adopting digital technology increases, the online food delivery market stands to benefit from an increasing customer base and engagement.
• Convenience at fingertips: The user-friendly interface and easy use of food delivery apps have attracted a wide range of consumers, from millennials to older generations, towards online food ordering. This ‘preference for convenience’ in consumer behaviour has driven the growth of the industry.
• Changing lifestyle: Rapid urbanisation and changing lifestyle have played a big role in the growth. People living in metros and urban setups, where life is fast paced, are leaning more towards online food ordering as it is much more convenient than cooking at home, especially for individuals and dual-income households who have less time to prepare meals. Also, the COVID-19 pandemic further helped this growth as people wanted safer substitutes to dine-in options.
• Partnerships and innovation: Strategic partnerships between delivery platforms and restaurants has been another important growth driver as aggregators like Swiggy and Zomato collaborate with multiple restaurants, including local eateries as well as popular chains. These partnerships provide consumers with a wide choice of cuisines, catering to diverse tastes and preferences. Cloud kitchen platforms like EatClub and EatSure have also brought a unique approach by providing diverse menus and cuisines for customers from a single place. This has allowed the expansion of food delivery services in areas with limited dining options.

The preference for convenience and variety has been a driving force behind the rapid rise of these platforms. Factors such as the rise of smartphones, increased internet access and convenience have led to the rapid growth of the market and the pandemic further helped this growth amid lockdowns and safety concerns. The following charts depict the behaviour of people from different age groups with regard to online food ordering and the growth in the gross order value of one of the leading players in the industry, Zomato, over the past five fiscal years.

Source: Statista

Source: Zomato (conversion rate: US$ 1 = Rs. 0.012)

Key trends

• Hyperlocal delivery networks

Hyperlocal expansion of the services has been one of the key trends in the online food ordering and delivery market. Platforms have focused on serving specific neighbourhoods and localities within cities in order to cut delivery time and to improve operational efficiency and customer satisfaction. Setting up of dedicated distribution centres in various localities helps in faster food deliveries. It also allows platforms to offer a wider variety of options according to the local tastes and food choices. Additionally, these platforms are incorporating technologies like data analytics and machine learning that helps the companies identify demand patterns, personalise the offerings at a local level and enhance delivery routes, resulting in a wider food choice for the customers according to their location as well as faster deliveries.

• Sustainability

Sustainability has become an important factor, driven by the environmentally conscious consumers. Platforms are now adopting eco-friendly practices, like the use of biodegradable packaging, promotion of responsible waste disposal, and reduction in the usage of single-use plastic. Some platforms also offer incentives for choosing sustainable delivery options where deliveries are made using e-vehicles instead of those running on fossil fuels.

• Adoption of emerging technologies

Platforms are adopting latest technology to improve the overall customer experience. Chatbots and virtual assistants driven by AI are being used to manage customer queries and organise the ordering process by providing recommendations and answering questions of the customers. This makes the customer experience more convenient and efficient. Data analytics is used to understand the preferences and behaviour of consumers in order to offer personalised recommendations, discounts and promotions. Automated features like order tracking, real-time updates on delivery status, and contactless delivery options have further improved customer satisfaction and addressed health and safety concerns.

Challenges

India's online food ordering and delivery market is currently dominated by giants like Swiggy and Zomato, making it tough for new entrants to establish themselves. Cloud kitchen platforms like EatClub and EatSure have further added to this competition. Strong competition and market saturation has forced platforms into aggressive discounting and cash burn strategies for acquiring and retaining customers during the initial phase. However, recent financial results from Zomato indicates that food ordering and delivery business can be profitable once it reaches a scale. These platforms need to focus on innovation, diversification, and enhancing customer loyalty through unique services and technological advancements to build a sustainable business.

There is also a complex regulatory environment, encompassing food safety, taxation, licensing and labour laws. The implementation of GST has also caused difficulties in the industry due to varying tax rates for different food items and services, adding complexity to compliance requirements. Confusion about the classification of food delivery personnel as gig workers or employees has also led to legal disputes in some states. To tackle these obstacles, the industry needs to collaborate with regulatory bodies to establish clear guidelines compliance processes.

The success of online food delivery is dependent on efficient infrastructure, which faces several challenges such as traffic congestion, sub-par roads which leads to delays and customer dissatisfaction.

Maintaining the food quality and temperature during delivery is also critical for customer satisfaction, for which investments are necessary in specialised packaging and delivery infrastructure.

Road ahead

The digital revolution in India has helped the online food and delivery market to grow rapidly and government initiatives like Digital India and the rise of Unified Payments Interface (UPI) have been a major catalyst. Moreover, to offset the domination of the food delivery aggregators, the Department for Promotion of Industry and Internal Trade (DPIIT) has launched the Open Network For Digital Commerce (ONDC) platform. It is aimed at providing an opportunity to restaurants to reach customers directly while avoiding the high commissions charged by aggregators. Payments also occur directly between customers and restaurants, thus avoiding the middlemen.

With the online food order and delivery market expected to grow at a CAGR of around 27%, the demand is expected to be driven by tier 2 and tier 3 cities with growing internet and smartphone penetration. The large population of young professionals and students in urban areas as well as tier 2 and tier 3 cities will be the prime targets for these online food delivery platforms due to their demand for convenience, quick food delivery and high disposable income. Emerging technology such as drone delivery is expected to further enhance operational efficiency and optimise customer experience in future.