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HungryNaki’s strategic realignment, and the business of online food delivery in Bangladesh

Online food delivery startup HungryNaki has reportedly scaled down its operations and laid off a majority of its employees, per several media reports. The company has cut its coverage by half to 15 zones from previously 30, shutting down almost all its coverage outside of Dhaka and Chattogram. Of the remaining zones, 13 are in Dhaka and two in Chattagram, according to sources. 

HungryNaki has been going through significant internal changes of late. The company named Dara Bangladesh’s COO Khondoker Tasfin Alam as its new CEO. The move suggests the company aims to reorient its business in a different direction. 

Alibaba-owned Daraz acquired HungryNaki in 2021 from its local owners at an undisclosed amount. Originally started in 2013, HungryNaki was one of the earliest food delivery companies in the country. Post-acquisition, HungryNaki quickly expanded to several cities outside Dhaka including Gazipur, Narayanganj, and Cumilla among others. 

There are several available explanations for HungryNaki’s move. One straightforward argument puts that the business is not going well and that you can’t always buy growth with money. The argument subtly implies that the company is unlikely to recover. Plausible enough. Certainly business is not going well. That part is given. But scaling down does not always imply a strategic misstep. Rather a strategic realignment. Done right, scaling down can allow a business more room for breathing and recalibration. More on that in a moment. 

Transitions 

The food delivery market has gone through several dramatic changes over the last few years in Bangladesh. The pandemic has afforded the industry excellent growth within a short time, doubling business for a few players, but the market remains urban-centric and relatively small. Industry insiders concede that a significant percentage of the growth is discount driven. 

It is natural for a new vertical/product to go through an early period when you incur higher customer acquisition costs. People don’t know much about your product. There is little awareness. You need to invest in education and awareness. Thus higher customer acquisition. 

Food delivery is a new service in Bangladesh. More so when it was started a few years back. Hence, companies are having to invest in market education which drives up customer acquisition costs. The customer acquisition cost eventually comes down when the market matures and companies begin to retain users. But food delivery companies in Dhaka have found it difficult to expand their recurring customers sustainably. Intense competition in the vertical has also made it more expensive. 

While growth has been there, the market also saw several players shutting or scaling down their operations in the last few years. Uber Technologies shut down its Uber Eats in 2020, just a year after entering the market. Last year, Shohoz closed its online food delivery arm. Many smaller players either scaled down their operations or entirely perished from the market. 

Currently, foodpanda is the biggest player in the vertical followed by Pathao Food. Both players have invested heavily in the early days. While Pathao has become measured in its pursuit of growth of late, Foodpanda has been pushing boundaries in the vertical for a while. The rather aggressive strategy has allowed foodpanda a significant market share. 

Reality 

While foodpanda and Pathao Food have been able to build out their own market position, everyone accepts that the market remains heavily reliant on discounts. We have written it before. Hungrynaki puts this reality of the market as the reason behind its decision to scale down. 

The vertical also faces challenges with rider shortage, relationships with the restaurant partners, etc. Every player is looking to build a sustainable market and move away from cash burn. 

The market leader foodpanda has significantly scaled its business. It is now available in all district towns across Bangladesh. The company has also launched a grocery delivery service called PandaMart. 

HungryNaki also has a similar grocery delivery service but a much smaller operation. 

While the thesis in favor of food delivery services — rapid urbanization, dual-income households, time-starved and convenience-seeking middle-class — appears true, the service is yet to gain mainstream adaption. 

Compared to its early days, when food delivery platforms mostly served expensive or take-out foods, the platforms today offer far greater varieties and choices to customers. The minimum order value has also gone down over the years across platforms. All these moves have helped expand the market but just not enough as yet. 

Strategy 

After acquiring HungryNaki, Daraz Bangladesh initially wanted to expand the business to around 100 cities, investing extensively in infrastructure, technology, and human resources. The company did follow up, expanding to multiple cities within a short time. 

However, it did not take HungryNaki long to realize the reality of the market. While many socio-cultural conditions for the flourishing of food delivery services are present today, the service is yet to go mainstream. The intense competition from leading players and over-reliance on incentives for growth have also exacerbated the challenges. The customer acquisition cost remains high. Intense competition makes it difficult to scale sustainably. This has naturally resulted in one of the two responses: a reduction in investment from the parent company Alibaba. 

Hungrynaki essentially came to accept the reality of the market and decided to recalibrate accordingly. Instead of trying to push through the wall by paying for growth, the company decided to take a slow and steady road. Instead of burning cash where overall growth remains challenging, the company aims to concentrate in locations where it has meaningful penetration and push further in those locations. 

Several press reports suggest that Daraz has no plans to shut down the service yet. The recent changes also don’t give any hint of that. But it is apparent that the company wants to build differently. The company sees taking a deliberate approach will allow it to respond better to the market needs and competition. The current global economic condition has likely played a role. 

The decision to scale down the operation looks like a sound strategic decision. For one, the world is going through a difficult economic condition. All indications suggest the days are going to be tougher. Taking a deliberate approach in a difficult financial environment makes sense for any company. 

Second, premature expansion is always detrimental to a company. Having operations in 30 different zones does not make sense if the demand is not there. Such expansion often is expansive financially as well as operationally. Often businesses follow 80/20 rules. To that, closing down operations in locations that don’t produce good enough numbers will allow HungryNaki to pay greater attention to the locations that produce better results. It should free up resources, reduce operational complexities and debt, and help preserve cash. The newfound flexibility should allow the company better compete in the locations where it now operates. Contrary, since demand is not essential sky high in the locations where HungryNaki shut down its operation, it does not cost the company much at this moment. 

Daraz Bangladesh bought HungryNaki apparently because the company sees an opportunity to cross-promote both services. There have been efforts to better integrate both services. The companies are likely to take the integration further in the coming days. With the scale down, HungryNaki may also invest more to better align these strategic priorities. 

That said, scaling down operation is not going to solve various execution and market challenges the company face. The competition will remain equally intense. Growth is likely to remain costly for food delivery companies for a few more years. The challenges around logistics and infrastructure are unlikely to go away because your operation is now smaller. However, scaling down should allow HungryNaki to address each of these challenges with greater focus and resources. We’ll have to wait to see how the company fares in the coming days. 

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 [email protected]

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