Pathao Launches Pathao Food, Why Pathao Food, Pathao’s Leverage and The Business Of Food Delivery

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Jan 18, 2018

Pathao has launched its food delivery service Pathao Food on 15th January. The platform, which, according to Pathao, currently has over 300 restaurants on it is now available in Gulshan and Banani area, a hyperlocal strategy that food delivery companies often use. The company plans to expand the service to other areas in the city soon.

The service, so far, continues to receive good reviews from users which prove two things 1) Pathao has built a good execution muscle 2) the ride-hailing startup has managed to build a loyal users base, a key factor to any consumer product success.

Pathao CEO, Hussain M Elius on Facebook about Pathao Food:

“We are launching with 300+ restaurants in Gulshan/Banani area only, with local favourites such as Star Kabab, CP Five Star such as Star Kabab, CP Five Star and Salaam's Kitchen. With minimum order value of 50 taka and a promise that you'll never stop discovering - Pathao

Food our first major vertical since the original Pathao Rides.

We are soon going to open up the service in other areas and you will soon have thousands of restaurants at your fingertips. Our philosophy of continuous improvement will be reflected in both our technology and our operations and both are going to get better over time. Thanks for the entire Pathao team's mad hustle to make this happen and thank YOU for being with us from Day 1.”

The move has unleashed an interesting discussion in Dhaka’s tech community. More so given the fact that Pathao does enjoy a widespread brand recognition in the market. I believe this to be an important move for Pathao for multiple reasons. More on that in a moment.

There is a host of food delivery services in Dhaka including leading players Foodpanda and Hungrynaki among others. However, I would like to argue that being in both ride-hailing and logistics business, Pathao has certain leverage that will help the startup effectively compete with the existing players and even win.

Let’s start with tallying the services that Pathao offers now and a little bit of understanding of the business Pathao is in.

Patha offers ride, both bike, and car; it has a logistics operation having hubs in different areas in Dhaka, Chittagong, Sylhet, and Rajshahi where it basically serves ecommerce companies; it offers a parcel service, mainly on demand delivery service which you can avail for sending documents, accessories, packages and even gifts; and now it has launched Pathao Food which is to some extent is an extension of its existing logistics and parcel service.

The company had a Pathao Mart service that it killed for unknown reasons. My guesses are either because of low traction or technical infeasibility with its existing infrastructure or for conflict of interest with the existing ecommerce partners whom the company has to woo for logistics business, at least for now.

If you pay close attention you will see that all of these services are similar if not same in nature: logistics service - taking people from one place to another and taking products and food from one place to another. There are intricacies and dynamics of each service are different but theoretically, they are not much different.

Another key characteristic of all these services is that it makes Pathao even more powerful as an aggregator and make its customers reliant on it for more than one reasons.

Many people consider Pathao (MUV and similar ride-hailing businesses) to be a taxi service or a mere transportation app or a logistics company, (this has happened with Uber as well). But to my understanding, Pathao (and other similar services) is all of those things combined and more. For a better picture, here is from The State Of Consumer Technology In Bangladesh At The End of 2017:

“Ride-hailing is obviously a major trend. This is an interesting space. It connects both offline and online and does so very efficiently. On top of that, transportation is more like messaging in mobile, the ultimate deal in the physical world.

When you dominate the nodes of transportation, you can do a lot of other things. Moreover, Ride-hailing services are app-based which allow these service providers to have a dedicated space in users mobile phone. You can use that for many other reasons.

Ajkerdeal, among ecommerce companies, I think has realized this importance of mobile and is trying to turn itself into a platform.

Ride-hailing, I think, allows a service provider to become a platform on top of which you can put layers. Go-Jek is a good example. In Bangladesh, it is likely that a few ride-hailing companies will try to build layers the examples of which we have already seen.

While Pathao is in an extremely good position in this space, competition is likely to grow in the near future. Moreover, this is a complex space with a lot of overlap in terms of investments and all. For instance, Softbank has investments in Ola, Grab and now Uber as well as in Didi. There is a sign of strategic alignment.

Having said that, competition seldom kills a business. Pathao has built a brand, a good service and has scaled as well. The only challenge I think is the market.”

This is why Uber is valued at close to $70 billion and ride-hailing startups across the globe continue to raise a staggering amount of money.

Pathao (and other similar businesses) is building thus owning an important infrastructure of our physical world that too at the intersection of online and offline. These dynamics put it in an impossibly good position to explore many other nodes that have a connection with its core business. I hope to explore these areas in more details in a separate piece, this is about Pathao Food.

Why Pathao Food and The Business Of Food Delivery

The major difference between ride-hailing and food delivery or any other logistics service is the service level agreement that you need to have regarding time and speed. Someone ordered a breakfast, you have to make sure that it reaches the customer on time. This is why almost all the Food delivery businesses in Dhaka have their own logistics wing in one form or other. This allows them to have greater control on the customer experience which is the key to this business.

The other characteristic of Food delivery business is that they tend to be hyper-local in nature, that I already mentioned. This is also due to time and speed and customer tendency. A customer in Dhanmondi is likely to order food from a restaurant in Dhanmondi and it does make sense from the delivery perspective as well because when you have a hyper-local operation you can have better efficiency in-terms of timing and delivery cost. HungryNaki does this. Foodpanda does this. And now Pathao is doing this. That’s why Pathao Food is currently only available in Banani and Gulshan area.

Pathao Food is currently tied to its logistics operation. It has hubs for logistics in different parts of the city which they use as a collection and distribution hub. While Pathao has been trying to build a bridge between its riders and its logistics business, my guess is that Pathao’s logistics business still operates independently of ride-hailing and has drivers who solely do logistics delivery, this is again because of that reality of service-level agreement. And now Pathao Food will take advantage of these hubs and drivers, at least for now. This is how almost all logistics business operate. As I said, I think Pathao will eventually connect these delivery services with its ride-hailing business, if it has not already.

To my reading, there are a couple of reasons why Pathao is getting into food delivery 1) it will increase efficiency, for both its logistics business and when it connects ride-hailing, for the riders as well 2) Pathao is a venture funded company and growth is what you sell and Pathao has an obligation to show that it can grow really big 3) finally, Pathao is building its moats, a rather defensive strategy to secure its ride-hailing leadership (in bike of course) by owning customer interactions and giving more than one reason to customers to stay with it ahead of competitors. There are other reasons but these are I think the most important ones to note.

Pathao’s Leverage

Pathao has a relatively widespread adaptation among tech-savvy young people (and beyond) who are basically the customers of food delivery business. This will certainly help the company to gain a foothold quickly. From the competition perspective, I think this is an important leverage to have.

Let me explain why. Pathao Food and other food delivery services such as HungryNaki and Foodpanda operate in a consumer market where differentiation is quite difficult. In such a market consumers often don’t use multiple products and tend to stick to the same service or product they are using currently if something significantly different does not take place in the market i.e. a clearly superior product. Because comparing price and switching often simply does not make sense for a user.

You can definitely claim that I offer the best possible service experience, but that’s obviously not something that other players can’t do.

Tech is another space where you can have certain leverage but that’s too almost similar given that this is a basically logistics operation. I don't expect the price to a differentiator because everyone will be competing on it and will not allow one single player to have an advantage.

This nature of the consumer product market is what gives Pathao Food extra advantages over other players in the market and as well some disadvantages. Because when a service is a commodity it does not matter for me which brand I use as long as it is easier for me to get that service and it meets my basic criteria.

Now as a user you already have a Pathao app on your phone which you use for taking rides and all. And say, you also have Foodpanda app on your phone that you use for ordering food. Now when you are using Pathao app for the ride, suddenly you can use it for ordering food as well the job that Foodpanda app does. Now you don’t need to accommodate two separate apps for the same reason. Essentially, you will keep the Pathao app because you need it for more than one reasons and get rid of Foodpanda.

This is one scenario which gives significant leverage to Pathao for several reasons 1) Pathao already has a significant adaptation in the market 2) There is more than one reason to keep Pathao app in your phone 3) most importantly, when you keep Pathao app you don’t need Foodpanda anymore meaning every customer Pathao gets for either ride-hailing or Pathao Food, Foodpanda and other food delivery services loss that customer.

This is a zero-sum game for food delivery companies and they essentially can’t neutralize Pathao’s advantage. The disadvantage for Pathao of course that I already mentioned due to the nature of consumer products as well as service level agreement that is required in this business.

Having said that, I don’t think Pathao is particularly going to give a hard time to food delivery companies in Dhaka, but I do think that things will be a lot more competitive for them going forward as more ride-hailing companies get into these areas which is certainly going to happen.

Food delivery is an interesting space. While the market is not that big yet, it is likely to grow as almost all socio-economic trends suggest.

However, as I mentioned earlier, I don’t think Pathao Food is a decision about opportunity alone, I think Pathao is aware of the fact that competition is likely to intensify in Dhaka’s ride-hailing space and getting into food will give it certain competitive leverage from several perspectives 1) owning riders/users interaction for more than one reason. Since ride-hailing is a demand-driven market, it will allow Pathao to control drivers as well because drivers follow riders and vice versa effectively protecting it from the competition. I plan to explain this part in a future post. 2) Pathao, I assume, does have growth pressure particularly because the company has to ultimately raise more money in order to push its expansion and the only way to get there is more growth and it is likely that Pathao will push further in the coming days. 3) of course, Pathao does have the infrastructure to get into Food delivery business and why not.

These are exactly the reasons why I’m excited to see how ride-hailing plays out in Dhaka because it offers so many opportunities, as I mentioned earlier and the market is simply extremely demanding one from both competition perspective as well as users perspective.

If you consider Marc Andreessen of Andreessen Horowitz to be someone who knows a thing or two about startups then this is the perfect market to be in because as Andreessen wrote many years ago:

“In a great market -- a market with lots of real potential customers -- the market pulls product out of the startup.

The market needs to be fulfilled and the market will be fulfilled, by the first viable product that comes along.

The product doesn't need to be great; it just has to basically work. And, the market doesn't care how good the team is, as long as the team can produce that viable product.

In short, customers are knocking down your door to get the product; the main goal is to actually answer the phone and respond to all the emails from people who want to buy.

And when you have a great market, the team is remarkably easy to upgrade on the fly.”

Ride-hailing is that market now and the opportunity, if you realize how important transportation is for both offline and online world, is simply too big an opportunity to give up on without trying hard enough. This is exactly why Pathao Food is important.

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Notes:

1. In many places, I used Pathao inter-changeably for ride-hailing startup

2. Photo credit: Pathao's Facebook Feed

3. Further reading on Pathao here.

4. Further reading on HungryNaki here.

5. Further reading on Foodpanda here.

6. Further reading on overall food delivery business in Dhaka here.


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Ruhul Kader is a technology and business analyst based in Dhaka, Bangladesh. He is also the co-founder and CEO of Future Startup and author of Rethinking Failure: A short guide to living an entrepreneurial life. He writes about internet business, strategy, technology, technology policy, and society. He can be reached at ruhul@futurestartup.com

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