Published in Mar-Apr 2018
(The article was first published in Mar-Apr 2018 edition of Aurora.)
A: You started in this business with Food Connection Pakistan (FC Pakistan). However, you had to close it down. Why?
NAUMAN SIKANDAR MIRZA: It was a failure in the business model. We started FC Pakistan in 2011. I had returned from England where I was managing a restaurant. Pakistan is a big market in terms of consumers and food is really the only entertainment. I wanted to create something that connected this large consumer base with the restaurant business. FC Pakistan’s model was listing-based, so although people could view the information on the website, they had to place their order or make a reservation directly. We had a listing of about 3,000 restaurants across Pakistan’s top 10 cities and a dedicated team who would call the restaurants and ask specific questions, such as the kind of food they served, opening hours, if they were air-conditioned and if credit cards were accepted and so on. The model was based on the traffic generated; the premise being that if a restaurant garnered a lot of traffic, we would up their visibility on the platform by offering them a featured listing. Some of the featured restaurants were getting 10,000 visits per month. The problem was that when people called to make a reservation or place an order, they did not say they had seen the information on FC Pakistan in the first place, so as far as the owners were concerned, we were not generating this traffic. The reason why we could not move to an EatOye or Foodpanda model was because we had Rs 500,000 in our account and when this finished within the first three months, we did not have the funds to change the model. The EatOye and Foodpanda models involve auto-transmission and therefore a call centre. In other words, you need to be able to install the technology at the restaurant so that you can transmit the orders you receive. Later, we raised funding locally and this enabled us to set up a call centre so that when customers placed an order with EatOye, it was digitally transferred to the restaurant. We then started scaling up the business. Foodpanda were already operating in the market and we started competing with them. About 15 months later, they approached us and we sold the EatOye business to Foodpanda.
A: EatOye still stayed in business?
NSM: We ran both EatOye and Foodpanda simultaneously for about 18 months because both businesses were of equal size and pulling the plug on EatOye would have meant potentially losing 50% of the business. It was only when Foodpanda achieved a certain scale that we felt confident about pulling the plug on EatOye as by then, this would not have any significant effect on the overall business; it was just a question of transferring all the customers to Foodpanda.
A: In your opinion, what were the factors that accounted for this growth?
NSM: The culture within both the restaurant business, as well as among customers, started to change. More and more people started to ask for home deliveries. As a result, restaurants were scaling up their teams and hiring professional people; they began to develop better infrastructures to meet the rising number of orders they were getting, be it from their customers or from Foodpanda.
A: How does the Foodpanda model work?
NSM: We start by bringing the restaurants on-board with us. Once they do so, we provide them with our technology, which is our tablet, and our team trains them on how to use the tablet. Once a restaurant is on-board, they need to meet a number of KPIs, which include making sure the food is prepared and cooked up to standard, packed and delivered professionally and on time. Every time a customer places an order with us, the order is transferred to the restaurant’s tablet within 20 seconds; there is no manual intervention. When the restaurant receives an order, they either accept or decline it. If they accept it, they prepare and deliver it to the customer within the prescribed time. We are working with 2,500 restaurants across Pakistan and 100% of those orders are digitally transferred.
Restaurants, unlike the FMCG business, do not have large funds to market themselves, nor do they have people trained in the marketing function; this is where Foodpanda comes in. We can club 500 brands together and invest $200,000 in a marketing effort aimed at generating additional consumer audiences for them.
A: Who does the deliveries – the restaurant or Foodpanda?
NSM: The structure of Pakistan’s restaurant industry is such that of the 2,500 restaurants we work with, 80% deliver themselves and the remaining 20% use our delivery service. We operate in 54 countries globally; in Turkey, for example, all the restaurants on our platform deliver themselves, whereas in Singapore, 100% of the orders are delivered through Foodpanda’s fleet.
A: What are the advantages for a restaurant to join Foodpanda?
NSM: Restaurants, unlike the FMCG business, do not have large funds to market themselves, nor do they have people trained in the marketing function; this is where Foodpanda comes in. We can club 500 brands together and invest $200,000 in a marketing effort aimed at generating additional consumer audiences for them. If their new orders come through Foodpanda, they pay us a commission on these orders. For example, suppose a restaurant generates 10 orders a day and then once they join Foodpanda they generate a further five new orders a day; this provides them with a new revenue stream.
A: What kind of marketing do you undertake?
NSM: Digital advertising, which includes Facebook, Google and YouTube. For our existing customer base we do push notifications, SMS and e-mail marketing. We also do a lot of restaurant signage and run outdoor campaigns; currently we have one running in Faisalabad and another in Rawalpindi. Apart from this, we are also running a TV campaign across Pakistan; we also do a lot of radio.
A: Are these campaigns targeting customers or the restaurants?
NSM: Customers only. The sales team is responsible for bringing the restaurants on-board.
A: Do you promote all your restaurants in the same way?
NSM: We have different categories of restaurants. We do special promotions with our top-tier partners. We provide our second- and third-tier restaurants with a bouquet of services, which includes a dedicated team that updates their menus and works with them on a daily basis, making sure they are visible on the website, receive orders and help them resolve any issues. The top-tier restaurants have access to the same services; the difference is that they have dedicated account managers and dedicated marketing budgets.
A: What defines a top-tier restaurant?
NSM: The brand investment they have made in Pakistan, the number of outlets they have, how proactively they work with Foodpanda to increase sales through our platform and the kind of investment they are willing to make with us to grow their volumes. There are multiple criteria but it boils down to the number of orders placed through our platform.
A: Are your top-tier customers made up primarily of international franchises?
NSM: Our categorisation is based on the number of orders a brand generates on Foodpanda. A lot of local restaurants have grown to become our biggest brands. In fact, the brand which generates the most orders per outlet with us is a local, Lahore-based brand. They have nine outlets and one of them generates twice as many orders per day compared to any other restaurant we have. They function at a mass level and during peak time, they generate one order for us every minute.
A: Which are your biggest markets in Pakistan?
NSM: Our biggest market is Karachi. We operate in Lahore, Islamabad, Rawalpindi and now Faisalabad. In the next eight months, we will launch in Multan, Hyderabad, Peshawar, Gujranwala, Quetta and Abbottabad.
A: What are the criteria for launching in a city?
NSM: To have a minimum of 100 restaurants on-board.
A: There are 100 restaurants in Abbottabad which are prepared to come on-board?
NSM: Yes; there are 200 million people in Pakistan.
Ninety percent of our business is cash on delivery. In Pakistan, credit card penetration is very low. There are only one million credit cards users and although 37 million people have debit cards, many are not activated for online purchases by banks. We are talking to the State Bank of Pakistan and the Ministry of Commerce to enable these cards for e-commerce purposes.
A: All this presupposed a change in mindset and culture because surely ordering in is going to be more expensive than cooking at home?
NSM: With Foodpanda, one of the benefits is that a lot of the time the food is cheaper.
A: Cheaper than cooking at home?
NSM: For example, we have just run a 50% off deal for KFC, where customers can buy two burgers and two fries for Rs 500. At the moment, we are running a 40% off promotion with OPTP. This month, we have offered 50% off deals across 200 brands. We do these campaigns regularly so it makes it worthwhile to order in; even cheaper than cooking at home, so why bother with the hassle? A change in culture is definitely happening. More and more restaurants are opening; people are opting for home delivery and they are ordering more food, so the purchase habit has increased. There are more nuclear families, at least in the metros; nobody is cooking at home, so they have to order food from somewhere. E-commerce platforms add convenience to our lives and enable us to get where we want to be in terms of our usage of a particular commodity. For example, when the drive from Islamabad and Murree used to be dangerous, perhaps only 5,000 people would go to Murree, yet once a new road was built, 100,000 people started to go to Murree. It’s the same with e-commerce. People wanted to order more food, but the process used to be so cumbersome, it discouraged them from doing so. As soon as you provide people with the convenience to do something, there is an immediate uptake. There are 52 million internet connections in Pakistan today. One-fourth of the population uses the internet and connectivity has increased 10 times in the last four years. Singapore’s population is six million; we have 50 million internet connections – 10 times more than Singapore’s population. This is phenomenal and it greatly helps the whole ‘convenience’ experience. Before Foodpanda, customers in Karachi or Lahore would know about five restaurants that delivered, but they didn’t know the menu; there was no information about deals and maybe they didn’t even know the phone number. All this made the process tedious and cumbersome. With Foodpanda, customers can place their order within 30 to 50 seconds. Our app automatically detects where a customer is located and shows them the restaurants that deliver there. They can see the updated menu; all they need to do is select and place the order. This is how seamless the experience of ordering has become.
A: How do customers generally pay?
NSM: Ninety percent of our business is cash on delivery. In Pakistan, credit card penetration is very low. There are only one million credit cards users and although 37 million people have debit cards, many are not activated for online purchases by banks. We are talking to the State Bank of Pakistan and the Ministry of Commerce to enable these cards for e-commerce purposes.
A: Does working through Foodpanda mean that restaurants have to hire more staff to service the experience?
NSM: No. Our main proposition is that if you are running a restaurant and handling the deliveries, you do not have to add a single person, because if you are doing 10 deliveries, you already have a chef preparing the food, you already have a delivery manager and someone taking orders. You just plug Foodpanda in and we bring you more orders. So based on the same number of staff, we increase your productivity and your revenue. Now, if the business increases three or five times, then you may need to hire one more delivery manager, more delivery riders and more chefs in the kitchen. However, initially when we partner, we enhance their utilisation after which an increase in human resource may be required but within the same functions they already hire for.
A: Do you experience problems with customers who receive their order, but for some reason or the other, refuse to pay?
NSM: Yes, we mark it as a business loss and ban them from ordering again. However, this is a small proportion; most people uphold their commitment and it is not a big problem.
Karachi has a population of about 20 million and the restaurant base to serve this population is small. Dubai’s population is about six million and the city has 10,000 restaurants; Karachi doesn’t have one-fourth of that number. There is a huge potential within the metros and the second-tier cities.
A: The food business has grown tremendously. Do you see the landscape changing in terms of cities and localities that did not provide many orders, but are now experiencing significant growth?
NSM: Since last year, after DHA, our second biggest market in Karachi is Gulshan, although our focus was on developing Clifton after DHA. We also thought that Islamabad would be a big market and we put a lot of emphasis there, yet now that we are focusing on Rawalpindi, the orders there are growing at double the pace compared to Islamabad. The point is that the potential was already there, we just did not focus enough on those areas. We are now growing very quickly in Faisalabad as well.
A: Your growth is dependent on the growth of the restaurant business. How fast is it growing and do you think it will eventually reach a plateau?
NSM: Restaurants in Pakistan are growing at a net rate of about 20 to 25% year-on-year and this will continue for the next five to 10 years at least. Pakistan is just getting started. Even in the big cities, the market is underdeveloped. Karachi has a population of about 20 million and the restaurant base to serve this population is small. Dubai’s population is about six million and the city has 10,000 restaurants; Karachi doesn’t have one-fourth of that number. There is a huge potential within the metros and the second-tier cities.
A: Would ordinary dhaabas join Foodpanda?
NSM: We plan to carry out a test with Bismillah Biryani and with Afghan and Pathan dhaabas, to gauge the kind of orders we can generate for them.
A: Would the clientele of these dhaabas be receptive to the concept of ordering in?
NSM: Well, I eat anda paratha from a dhaaba every Saturday. This is why we want to do a test and see what sort of traction we can get. We have a few restaurants on our platform which sell chicken biryani at Rs 70 per plate and we do about 300 orders a month.
Nauman Sikandar Mirza was in conversation with Mariam Ali Baig.
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