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Inside Foodpanda Bangladesh’s Aggressive Growth Push: An Interview With Zubair Siddiky, Managing Director, Foodpanda Bangladesh

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Mar 6, 2019

Since its founding five years ago, Foodpanda Bangladesh went through several phases. When it started selling food online in 2013, food delivery was a relatively new thing in Bangladesh. There were a lot of talks but little impact on the market. The total number of players in the food delivery business was a handful. Five years down the line, food delivery is an entirely different industry today. TAAM has grown. Awareness in the market has grown. Hence the number of people ordering food online has seen a meaningful uptick. With the market growth came more competition. The number of players has increased. Food delivery is an entirely different market today.

Foodpanda Bangladesh, as one of the leading players in the segment, has gone through a metamorphosis of a sort. It has expanded coverage. Made meaningful strategic changes such as introducing free delivery for all orders, slashing minimum order value to BDT 50, and so on. It has pushed for restaurant acquisitions. Today, there are over 3200 restaurants on its platform. Introduced a new recommendation engine on its platform. Invested in data and technology to improve logistics. In 2019, it aims higher.

In his second interview with Future Startup since 2017, Zubair Siddiky, Co-founder and Managing Director of Foodpanda Bangladesh, updates us about the major changes at Foodpanda Bangladesh since our last interview in 2017, moves Foodpanda has made to grow its business, how it has doubled the number of restaurants on its platform, how new features like the recommendation is helping Foodpanda to achieve better conversation, the state of Foodpanda business in Dhaka, its ambition going forward and much more.

Future Startup

When we interviewed you for the first time in October 2017, Foodpanda was a team of about 45 people and 250 riders, you were covering almost all of Dhaka, you had already launched in Chittagong and Sylhet and you were doing overall well, how much has Foodpanda grown over the past one year? Could you please give us an overview of Foodpanda today?

Zubair Siddiky

A lot has changed. I would highlight two aspects: our reporting structure has changed over the last one year and then our local operation. As you could see, we moved to this new office because we were out of space because our team has grown exponentially. This office is almost double in size compared to our previous office. Our FTEs have grown to about 130, mostly driven by business development, sales, and Account Management.

We have made a huge push in sales, which is restaurant acquisitions, and that's where these people are mostly working. We have invested heavily on that side. Obviously, when we increase our portfolio of restaurants, we need to increase other supporting services as well, like restaurant operation, onboarding team, restaurant content team, and Account Managers.

We cover almost the whole of Dhaka today. We have launched operations in a lot of new areas in Dhaka which we were not covered in 2017. We now cover almost all of Dhaka where there are a handful of restaurants this is because food delivery is such a hyper-local business. So the coverage has improved a lot and it continues to do so. We have expanded and that too a lot faster. That's why our business development has grown. Because we only work with restaurants with whom we have contracts.

We have now more than 3200 restaurants on our platform which was much lower in 2017. It has been a massive push on restaurant acquisitions and we plan to expand to several tier two cities by Q2 this year. We have about 50 people working in our restaurant acquisition team. We have pushed in all three cities where we are operating currently: Chittagong, Sylhet, and Dhaka.

Food delivery has changed over the last year. The number of restaurants has gone up significantly in many parts of Dhaka. In areas like Mirpur, you can see new restaurants are opening up almost daily. If you go back a year or so, you would see probably 20-30% of what you see there is now. It has been a huge growth in terms of the number of restaurants which is a good sign for us.

It also shows that the income level is going up in the country and that people now have increased purchasing power. We see a huge potential going forward. That's why we are investing heavily. In terms of local operation, we have seen tremendous growth this year.

There has been a slight change in our reporting structure. Our mother company is Delivery Hero. When we spoke last time in 2017, Foodpanda was working with another Delivery Hero brand called Foodora. The reason being we were the two companies doing our own deliveries within the group. The other established companies within the group were the marketplaces. That was a basic difference between us and the other companies.

However, it has changed over the last year. We now work and collaborate regionally. Our regional operation, APAC structure, has become stronger over the past year. Foodpanda and Foodora don't work much together now. Foodora is mostly Europe-based and there were issues related to timing, branding, and others. European customers are very different from Asian customers. We decided that we would keep Foodpanda and APAC as a whole and concentrate on the region. That has been a major shift in the reporting structure. We have become more regional now with the headquarters in Singapore.

The APAC region has seen massive investment in 2018 and in 2019 it will be much higher because this market is growing faster and has high growth potential, while other markets and regions are much more established. These are the markets where competition is also most fierce, I would say. You have Grab Food, Deliveroo, Honest Bee, Go-Jek, and many other players. That's why we have been investing heavily as we want to keep our market leadership position in the APAC region.

Foodpanda Bangladesh
Foodpanda Bangladesh | Photo by Foodpanda

Future Startup

How much have you grown in terms of business? If you could give some numbers that would be great.

Zubair Siddiky

It has been a great year for Foodpanda. We have made pricing adjustments - there is no delivery fee now on the platform for the six months. We have reduced our minimum order value to 50 taka only. It is now very easy and cheap for a single person to order. These changes are part of our affordability drive and have helped us to grow significantly.

I could not give you exact numbers but we have been seeing growth in the region of 400-500% in terms of orders. We presume that we will continue to see this growth throughout 2019 as well. Our coverage has improved a lot in terms of restaurants, in terms of area and our offering is the best in the market.

Future Startup

Apart from Dhaka, you are in Sylhet and Chittagong as well, how are you doing in those two markets?

Zubair Siddiky

Chittagong market has grown significantly. Sylhet has grown sharply too over the last month or so and we expect it to continue in 2019.

In Chittagong, we see a lot of new restaurants opening up and it has been growing massively but Dhaka remains our main market and also the main growth engine, I would say. In Dhaka, Mirpur, Banani, Gulshan, Dhanmondi, Uttara, Khilgaon, Basundhara - these areas are growing very fast.

Future Startup

You slashed your minimum order value and now don't charge for delivery, does that affect your business?

Zubair Siddiky

It definitely affects our margins but we have done that in a way that the business is sustainable and we have positive gross margins. Basically, we don't lose money on each order, which some other companies do. we don't lose money on every order because our fundamentals are very solid. My revenue share deals with the restaurants are arranged that way and are healthy and my operational efficiency is also very good.

We are happy to pass on the gains from efficiency to our customers in terms of reduced pricing rather than increase our margins at this point. It definitely affects our business in terms of reduced margins but we still have positive unit economics which is very important to us and our investors. It would have been a big challenge if we had negative gross margins but that's not the case. We hope these numbers will get better over time as we grow further.

It also makes sense for our customers. What could have been better for a customer than having no opportunity cost of ordering food online? Customers now have no opportunity cost for ordering online. They don't have to pay extra in the form of a delivery charge.

On top of that, many a time we provide discounts and bring deals working with our restaurant partners. We are trying to provide our customers with better pricing than what you get in a restaurant. We want to be the most affordable platform for food in the country and provide the best in class service level to our customers with the help of technology

Future Startup

That's a good strategy because the delivery fee is a mental barrier for many people when it comes to ordering online.

Zubair Siddiky

Exactly. Say, for example, you want to order 150 lunch and for that, you would never be willing to pay 50 taka delivery fee. Probably someone ordering 5000 taka doesn't care about the 50 taka delivery charge but for someone who is ordering 150 or 200 taka, it does matter.

Future Startup

What's your long-term plan for delivery fees? Do you want to keep that free forever or do you plan to change it once people become habituated with online ordering?

Zubair Siddiky

I can't tell you that. But we are constantly trying to improve our setup and operational efficiency so that we could offer better pricing. That's what I would say now. I said it is sustainable and if it's sustainable we don’t have any problem doing it forever. If it's not sustainable, you can't do it forever. It will only be sustainable if you give these discounts not from your pocket but by earning them somewhere else.

We are continuously improving our operational efficiency and rider efficiency which reduces our delivery cost and thus improving our contribution margin, which in turn helps us to provide better pricing to our customers.

Future Startup

How does your logistics work now? When we spoke last time, you had two groups of people: contractual and full-time? How does that work now?

Zubair Siddiky

All of our delivery agents are contractual but timing differs. Logistics is something that has changed a lot over the last year. We use the same logistics system that is being used in all our 45 markets where we do our own logistics.

Food delivery has peak and off-peak hours. It is of extreme importance that you match supply and demand when your delivery demand is not linear. So you can't have flat shifts of riders. Why can't you do that because of two reasons: there might be an oversupply of riders or there might be an undersupply of riders. If there is undersupply of riders, it would hamper delivery time and hurts your customer experience.

If there is an oversupply of riders, it creates inefficiency for the company and you would not able to retain riders for long because it hurts their income. For example, if you have two orders in an hour and you have ten riders ready at that moment. Two riders will get the orders and the rest will sit idle. Either the rest 8 don't make any money or as a company, you compensate them and thus you hurt your efficiency. So that goes both ways. You have to match supply and demand to avoid such a situation.

We have developed systems to address this challenge. We offer riders different shift blocks. Shifts are based on forecasted orders. Our algorithm forecast orders based on previous historical data, any ongoing campaign, and timing of the day and the month, if there is a special holiday - everything is incorporated and then we have a forecasted orders number. Based on the forecast we have shifted for riders for areas.

Shifts for areas also depend on the efficiency of riders in a particular area. Say, for example, a rider in Gulshan and Banani is more efficient than a rider in Mirpur for various reasons. One major reason being the delivery condition is different in different areas. In Mirpur, roads are currently in very poor condition, but in this (Gulshan) area delivery condition is quite good. So we consider that.

. Online payment is also higher in this area. All of these things affect the overall delivery time. All of these data are incorporated into our system and we measure the efficiency of our riders.

For example, we see the rider efficiency is much higher for this area than in many other areas. So we do the staffing accordingly. When there is a demand for new riders, a hiring announcement goes up in the system automatically. Demand and supply matching is something that we have gotten better at a lot and the whole logistics is based on that system.

We then allow the riders to choose the shift they want to take. Riders apply for the shifts and then we plan accordingly a week ahead. Here again, we create a competition among the riders to apply for shifts. We have a rider ranking and Batch system which we publish every week. The rider ranking system is based on the riders’ performance.

We have five or six different criteria based on which we prepare the ranking. We open the shift for riders based on the ranking. The higher you ranked you will get to see the shifts in your area first. The lower you ranked you would get to see the shifts towards the end of the time, which means you would not get to see the best shifts or there is a chance that the rider may not get any shifts at all if all the shifts get booked. The best shifts are peak hour shifts when you can get a lot of orders.

This creates competition among the riders. If they want the best shifts they need to be higher up in the ranking. If you have an oversupply of riders, it automatically improves the performance of your logistics. It has been the case for us for a long time. It improves service level and it improves riders' efficiency.

Rider efficiency is essential to have economies of scale and reduce your CPO and if you can't reduce your CPO, the business might not be sustainable in the long run. Logistics is something that we pay a lot of attention to.

Foodpanda Bangladesh
Foodpanda Bangladesh | Photo by Foodpanda

Future Startup

When we last spoke, you're working on a few new products. You were working on a rating system, a corporate subscription product, and so on. What are the major changes in terms of the Foodpanda product?

Zubair Siddiky

The product has changed tremendously. One of the most important changes would be the introduction of swim lane, which is basically a recommendation engine/Personalization to our users based on their ordering pattern, what they ordered and viewed in the past, and other behavior on the site. We have a swimlane l for offers and deals and then another for promoted restaurants and so on. It is a personalized feed for the end-users. It is basically the personalization of the user experience. We have already done that on iOS. Android has been there for a long time. The recommendation has proved to be a very effective tool for us. We do notice a considerable uptake in conversion rates.

You can also see the estimated delivery or the Dynamic Delivery time on the front-end as well which is based on rider availability, the cooking time of restaurants, and other relevant factors. So we have made a lot of changes product-wise.

The feed that you see on the web is very personalized based on your usage pattern and interest. With swimlanes what we have seen is that our conversions have improved and customer reorderings have improved. We have seen a spike in the number of orders since we introduced the Swim link. Because it is now easier for a customer to order from a restaurant they want to order from.

People don't want to go through 500 restaurants to find what they want to eat. Now since they can easily find the restaurants they like and can easily place an order, they do it. The decision-making has become a lot easier for the customers with the recommendation feed.

Future Startup

How is your B2B business doing?

Zubair Siddiky

Our B2B business is fairly new. We just launched it in June 2018. This year we have high ambition for the platform. It has been doing well. We have been working with a handful of B2B customers. We want to focus more on our B2B business in 2019.

Future Startup

What are the plans for B2B, if you could shed some light?

Zubair Siddiky

We have hired a lead for our B2B business who will be looking after that business. We are looking to do catered deals from selected restaurants for these customers. We are approaching different companies with these catered deals which offer them something additional. Apart from the benefit of monthly invoicing, they also get a better-priced menu.

Future Startup

What are the challenges for Foodpanda now?

Zubair Siddiky

There were some issues with new entrants to the market poaching employees that happened quite a bit end of last year. It is not a challenge because people you want to keep hold of will always stay with you or you will find a way to keep them. It is rather an annoyance that you get to deal with such an issue.

The real challenge I would say is around scaling our restaurant base as quickly/fast as we want to. What do I mean by that? Some restaurants are hugely popular but they have a very limited number of outlets and don't cover most parts of the city. Had they more outlets across the city, their delivery business would have grown much and they would have done even better. Despite having demand across the city, they have not been able to expand fast because of various reasons such as logistics or finance. The most important thing for food delivery businesses would be having these top-selling vendors to scale and have more branches across the city and country, fast.

If they are available throughout the country, they should be able to grow faster and the food delivery business would grow equally as well. If these guys don't go, where do you generate your orders from? I can't deliver from Banani branch of a popular restaurant to Baily road. So you need top-selling vendors to expand their outlets and open more branches really fast. Currently, what we are doing is we are seeing how we can help them to do this.

Foodpanda Bangladesh
Foodpanda Bangladesh currently operates in four cities in Bangladesh

Future Startup

How do you plan to help them? Are you planning to get into financing?

Zubair Siddiky

Well, we don't know yet. We are exploring options. It could be building and providing central kitchens. That's something we have been thinking to do. Our group has the experience of doing central kitchens in Singapore, Berlin, and South America. In the Central Kitchen model: we build the kitchen and leases it out to our top vendors in a particular area. It helps restaurants to scale quickly because the setup cost is not there.

I personally see a lot of potentials for cloud kitchens in Bangladesh. There are many areas in Dhaka, where there are very few options for people to order food from. People mostly eat at their company canteens or bring food from home for lack of options Cloud kitchens/Central Kitchens could be the solution, it is a huge potential market in these areas. I see similar potentials in many areas of the city where the quality of the restaurants is not good enough.

Having a large number of restaurants and having really the best quality vendors are two different things. If restaurants are not of high quality you can't generate orders from there. This is really important. This is something we are working very closely with some of our key vendors helping them open more outlets or at least delivery outlets, improving their operations by providing the data. The faster they scale, the better our business would get. We need the best restaurants in most areas of the city. Demand is there. It is more of a supply-side problem.

If you look at a similar market like ours such as Pakistan, their top restaurant chains have more than 100 outlets across the country. If you can't get there it would be tough to scale. This is a challenge, and to grow, we have to see some developments in this space. This is not something that is in our control. There are things that we could do to support our restaurant partners and we are trying to do that.

Future Startup

Competition has grown in the food delivery space over the past few years. Ride-hailing companies have entered the market full throttle and they have some advantages in terms of at least hiring delivery people. How do you see it?

Zubair Siddiky

Ride-hailing companies might have some advantages in terms of finding and hiring delivery people but having said that we have never faced difficulty in finding delivery riders either. There are plenty of eager people willing to work as delivery agents in our country. Food is a much more specialized business and you could not essentially do it as a part of the ride business.

There are peaks and off peaks. You can't run food delivery and ride together because if you go on to subsidize your off-peak hour delivery people, it would make the entire business inefficient. That's why many ride-hailing companies run food delivery as a separate specialized business.

Many ride-hailing companies start the food business with the understanding that they could cross dispatch and could improve the efficiency of both businesses. But we have not seen any example of that yet. That's why I don't think it is a big advantage because you eventually have to run it independently.

When there is a new player enters the market, there would always be some commotion. That happens in food as well. But I don't think we are yet at the stage where we could fight for market share. The food delivery market in Bangladesh is still in its infancy and I think instead of thinking of new players as competition, I rather view it in the context of market development. More players mean more activities and hence, the market would grow faster and awareness would grow.

Future Startup

In our last interview you shared two plans for the company: 1) you were working on a mobile wallet, 2) investing in personalization. You have done excellent work on the personalization side. How are you doing on the wallet front? What are the plans for 2019 and 2020?

Zubair Siddiky

We are a little behind on the wallet thing due to various reasons. In 2019, we plan to come up with a very good wallet. For us, the wallet would be in the regional aspect, it can't be country-specific. That's one of the challenges of being part of a global operation. We hope to launch the wallet in mid-2019. I don't have the timeline yet but it is in the pipeline.

We are working on a host of new features, more AI, more personalization, etc. Restaurant operations will remain a key focus area. We have onboarded so many new restaurants. These are mostly long tail. We are training these restaurants on cooking time optimization, menu optimization because one of the major concerns is when a restaurant declines an order many customers think that we declined the orders but we don't, we want the order to be fulfilled.

So we are training these restaurants on menu optimization based on days and hours and matching that with our data. We are training them on accepting orders quickly and preparing them fast so that the order can be delivered faster. We are also training restaurants on better packaging materials. We have a much bigger restaurant operations and compliance team now. We have focused solely on scaling in 2018 and this year we want to focus on this area. To optimize our delivery time further, we have to have restaurants giving us the food quickly and don't take longer prep time. We are trying to build that system working with the restaurants.

We have a restaurant relationship team that provides a weekly/monthly report to the restaurants with all the data such as the most ordered item, most declined product, and so on.

We are at the moment rolling out the most updated restaurant app which has all the features and reporting within the restaurant app. They could already optimize from the data that is available to them directly. We are also asking restaurants to take off menus that they run out of. They now can do it very easily using our system. The new app also has this reporting where we give suggestions to restaurants to optimize. We have seen top restaurants are very interested in it.

Future Startup

That could become a big business for you over time?

Zubair Siddiky

Probably. But the majority of the restaurants are not interested in it yet. They are not there in terms of mindset. I hope eventually this will change as these restaurants grow further.

In 2019, we want to focus on restaurant operations because we focused a lot on acquisitions in 2018. Now we want to train restaurants so that we could improve the overall service level and customer satisfaction.

Future Startup

How big is the overall food delivery market in Bangladesh? Where do you see the market going this year?

Zubair Siddiky

It is hard to say but my assumption is it’s around 175-200 Crores BDT. I expect that the food delivery market will grow 5x to 1000 Crore BDT in the next 2-3 years.

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