Multinational food delivery company Foodpanda recently introduced a new service named Pandamart, a platform where customers can order and get groceries and other essentials delivered at their doorstep. This is a natural extension of Foodpanda’s already fast-growing food delivery service, thanks to the coronavirus pandemic. Pandamart follows Foodpanda’s aggregation model where it aggregates grocery and other essential products shops under Pandamart, aggregates demands, and enables these shops to deliver online orders to customers.
Currently, customers can order anything from daily essentials to the grocery to pharmaceuticals to electronics from Pandamart. Business model and strategy-wise, Pandamart is to grocery and electronic stores what Foodpanda is to restaurants.
1/ Pandamart has attracted quite a bit of attention for its grocery delivery service since Foodpanda launched the service in April in collaboration with Shwapno. But it is not only a grocery delivery service. Rather it is an on-demand delivery service for everything essential. The expansion can be viewed from both perspectives that Foodpand has built enough operational muscle and sees a lucrative opportunity in these new verticals and that Foodpanda needs to expand beyond food delivery to build a large enough business making it inevitable for the company to prematurely expand into these new verticals while its business in food delivery remains limited in scale. Regardless of how you view the expansion, it is an important event in Dhaka’s tech space and indicates that with enough cash in pocket you can chase multiple verticals at once and tech marketplaces can and are willing to pursue growth in every relevant vertical where there is a possibility of growth.
2/ Foodpanda is a business that operates at the intersection of logistics and demand aggregation. Take, for example, Foodpanda’s food delivery business that operates in partnership with restaurants. Generally speaking, Foodpanda basically offers two things to restaurant partners: 1) logistics support where Foodpanda enables restaurants to take online orders and deliver them to customers since the majority of restaurants don’t have their own logistics wing or a system to take online orders and fulfill them. 2) Foodpanda generates orders for these restaurants through its online platform where it aggregates restaurants, designs lucrative campaigns in collaboration with restaurants, and brings in customers thus generating a consistent demand for its restaurant partners. For logistics, Foodpanda charges a delivery fee to customers. For-profit, it charges a commission on restaurants. To begin with, Foodpanda offers excellent benefits to both restaurant partners and customers and as its market power grows through demand aggregation, it can effectively set the rules of the game. As market power grows and Foodpanda manages to aggregate enough demands, it looks for more ways to make money using the power. Foodpanda getting into Cloud Kitchen is one such way for the company to improve its margin. Cloud Kitchen does two things for Foodpanda: 1) it improves margin 2) and it improves its standing with restaurant partners thus enabling it to ask for a better commission.
3/ Pandamart is yet another way for Foodpanda to leverage its market power gained through demand aggregation in the food delivery business. This time it's about expansion. With Pandamart, Foodpanda aims to replicate with grocery shops, pharmacies, essential items shops, what it has done with restaurants. The majority of offline retail stores don’t have a mechanism for managing and fulfilling online orders. These shops don’t have a way to accept online orders aka a website. They often don’t have a logistics system to execute deliveries. Foodpanda offers both to these shops. As the business grows, Foodpanda is likely to use the playbook it used for food delivery for growing and building Pandamart business such as setting the stage for asking for a better commission, getting deeper into the supply chain, and launching white-label brands and so on.
4/ The Pandamart hypothesis is quite straightforward and is similar to the dominant hypothesis currently being used in building technology companies, which is leveraging demand to expand to adjacent verticals. Foodpanda has built a fast-growing business around ready food delivery in Bangladesh. The company now wants to use the same expertise in logistics and demand aggregation to deliver other essential goods and expand its universe. Foodpanda has been able to aggregate a good number of users through a combination of strategies. The company believes that it can now sell more things to these same users. Thus comes the expansion to more verticals. The expectation is that the same customers who come to Foodpanda for food delivery will now order other products from Foodpanda. While this is a lucrative model on paper, companies that tried similar models in the past offer mixed results at best. Which means we will have to wait a few more months for the Pandamart score.
5/ Delivery is increasingly becoming a hyper-competitive space. Several companies are approaching deliveries with almost similar strategic advantages and expansion thesis. Pathao has launched several initiatives in the delivery space. Uber has moved into the space of late and we can expect that Uber will soon enter other areas of deliveries in every market where it operates. Shohoz has been active in several verticals as well. While only a tiny number of players will eventually survive, the overcrowding of the space makes it expensive for any new entrants. Customers ask for more discounts. Businesses demand greater facilities and often decline to pay the commission on which these types of businesses rest on for revenue models.
6/ Aggregating demand using aggressive acquisition techniques and then trying to sell more services to the same customers has been one of the defining trends in technology company building space for the last two decades. Companies take an aggressive customer acquisition approach in one vertical and then use that demand aggregation to expand to other relevant verticals. While the strategy makes for a great narrative and a perfect sense on paper, in reality, it is often a tall order. The challenge comes from three areas: 1) having a large number of users for one service does automatically make you capable of delivering a completely different service/product to the same users. For example, the dynamics, economics, and supply chain of grocery delivery are quite different from ready food delivery. Building expertise and then offering quality service in a new vertical is often expensive and takes time. 2) while the internet allows aggregation to an extreme extent, most delivery businesses are not pure software businesses. There are strong and critical offline components involved. Aggregating users for a software solution is easy but it is unlikely to be the same for something like grocery. 3) Users necessarily do not prefer a general aggregator that does everything over a specialized business that operates in a certain niche and thus can offer greater depth and superior service in that niche. It means users who order food on Foodpanda can shop groceries on Chaldal instead of using Pandamart simply because Chaldal is better for groceries.
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Pandamart is a testament to the idea that there is no boundary for technology-enabled marketplaces. Companies are and will continue crossing boundaries and explore growth opportunities adjacent and far end of their initial businesses leading to wastage as well as giving rise to dominant aggregators and powerful niche players across verticals.
