Where is Bangladesh’s online food delivery market headed?

It was back in 2013 when HungryNaki, one of the first food delivery startups in the country, began its journey and quickly became a leading player in the market with over 1,000 restaurants on the platform, and serving over a million customers every month.

Fast forward to 2023: Exactly a decade has passed, and HungryNaki's golden days are long gone.

It was fully acquired by Alibaba affiliate Daraz Bangladesh in 2021, and last month, The Business Standard first broke the news that HungryNaki was awaiting a shutdown by the end of June. 

However, that has not happened yet, but the end seems to be just around the corner.

Business leaders informed TBS that HungryNaki is still in operation, but it might bid goodbye anytime soon, while there's also a little chance that it would remain active for the unforeseeable future, provided it is blessed with a big-money investment.

"Even in the previous year, we were on the verge of closing down, but we survived. So, when it comes to startups, never say never," they said. 

They also clarified that even if they opt to close HungryNaki, it will not be a complete shutdown. Rather, it will be the end of the HungryNaki app and brand, but its customers will still be catered to through the Daraz app. Besides, the majority of HungryNaki's employees have already been accommodated in different departments within Daraz.

"This could probably be a strategic decision from Daraz's end, and they are perhaps thinking this move will earn them new customers from the Daraz app, but it might not essentially be a good idea," said Mohammad Ruhul Kader, the founder of Future Startup, a digital publication covering the startup and technology scene in Dhaka.

According to him, HungryNaki has already run its course, and even if its service is integrated into the Daraz app, that might not result in significant success. When it comes to food delivery services, customers seek a seamless app experience, which the current Daraz app in itself hasn't yet been able to provide. 

Additionally, the overall online food delivery services, which usually earn money in the form of commissions from restaurants and delivery charges from customers, are not in their best shape either. 

Earlier, Uber Eats and Shohoz Food, two other major players in the market, also threw in the towel in 2020 and 2021, respectively, amid the coronavirus pandemic.  

Industry insiders claim that only Foodpanda and Pathao Food have fared considerably well in terms of attracting new customers and retaining them in recent years. This, perhaps, signals that in spite of the market being huge, there isn't space for more than two top players to compete neck to neck. 

In the last 15-20 months, daily online food delivery orders ranged from 35,000-40,000 in Dhaka and Chattogram, hovering around 60,000 across the country. Foodpanda, with its widest network across the country, serves around two-thirds of the market, while the rest is served by Pathao Foods.

So, what could be the reason behind the consistent performance from Foodpanda and Pathao Foods, while many others are falling out? 

According to the top players in the market as well as the industry experts, a deep pocket with huge investment is key to success in Bangladesh's nascent startup scene, and that is precisely where many local startups are failing, compared to foreign-backed ones.  

"Online food delivery is a market where you can't expect to reach the break-even point within two-three years. At least in the first seven-eight years, you will have to spend heavily without expecting anything in return," said Syed Almas Kabir, former president of BASIS.

And this is where Foodpanda is head and shoulders above the rest. 

"Being part of a global enterprise grants Foodpanda access to abundant resources, tools, investments and data, enabling them to survive and establish a sustained competitive advantage," explained Quazi Tafsirul Islam, a senior lecturer of strategy, management and HR at the School of Business and Economics, North South University.

With an abundance of monetary backing, the company invested stiffly in not only campaigning and marketing but also made sure to give its customers the best possible experience. 

So, it developed a very light and user-friendly app to place orders and pay bills. Also, its pricing is very aggressive with deep discounts, and it always puts emphasis on quality control, resolving any issues within the shortest possible time. 

"All these things together contributed to Foodpanda's success in the country," said  Sajid Amit, an associate professor at ULAB, and a development sector strategist and practitioner.

Besides, Foodpanda also created a very organised and highly-trained delivery chain network that can reach people's doorsteps without bothering them. In contrast to its competitors, Foodpanda experiences minimal order cancellations due to the efficiency of its delivery personnel.

"Furthermore, it diligently honours orders within the app-allocated zones, a distinguishing feature rarely observed among other providers. Foodpanda's unique model facilitates instantaneous food order transmission to kitchens, optimising the algorithm to streamline the process," described Quazi Tafsirul Islam. 

"Consequently, Foodpanda delivery personnel efficiently collect orders from restaurants without any waiting time for food preparation," he added. 

Future Startups' Kader also shared an anecdote which made him realise why Foodpanda's delivery service is better than others. 

"I was once on the fifth floor of an office building, waiting for my food parcel. The delivery person called me over the phone and asked me to go down the stairs. But with Foodpanda, such instances are few and far between. Its delivery personnel are well trained to behave well as well," he said. 

According to industry insiders, Foodpanda has so far spent millions of dollars simply to train its delivery personnel to work efficiently. "Thanks to such heavy spending, they are the No.1," shared Almas Kabir. 

With such spending, Foodpanda also tried to make sure other players in the market quickly drop out of the competition, believes Fahim Mashroor, tech entrepreneur and the CEO of BD Jobs, adding that in the last three-four years, Foodpanda on average incurred Tk 150-200 crore annual losses.

TBS, however, could not independently verify this information. 

"Incurring losses does not always mean a company is failing. Even Amazon also couldn't make profits in the first 15-20 years. But at that time, it focused on customer retention, acquisition and business expansion. Foodpanda is also following in the same footsteps," explained Amit. 

Meanwhile, there are also some key reasons why Pathao Food is still capable of giving Foodpanda a run for its money, believe experts. 

First of all, Pathao, being a company based in Bangladesh and thanks to its structured leadership, has created an excellent network with local restaurants and eateries, according to Sajid Amit. There are several high-end and much-acclaimed restaurants that have exclusive deals with Pathao Food. 

To add to that, unlike Foodpanda or other food delivery services, Pathao Food has always refrained from offering aggressive prices. So, even though others have lost a large number of customers in recent years as soon as they started asking for delivery fees or stopped giving away big discounts or vouchers, the same didn't occur with Pathao Food. 

"In the beginning, many food delivery services would give big discounts, and wouldn't charge delivery fees. So, for example, lunch meals were available at as low as Tk100. But then they started asking full prices alongside delivery fees," explained Fahim Mashroor. 

"So, what was once available at Tk100 now became Tk200-220, and middle-class customers were no longer interested in those food delivery apps," he added, giving a clearer picture behind the failure of those apps after a promising start.  

We reached out to Pathao's CEO Fahim Ahmed to know how they were still holding onto a significant market share in the country. He sent out a written response.

"Companies shut down when they lose money. Pathao is the only profitable company in the food delivery business in Bangladesh," the response read. 

"At Pathao Food, we have resisted the cheap thrills of discounts and gimmicks that have distracted our competitors — current and former — and instead focused on providing superior service that our customers love and for which they are rewarding us.

"We offer our customers their desired selection of restaurants, fastest and most reliable delivery of their orders, seamless payment experience including through Pay Later, and easy-to-access customer service," he added. 

However, it is unlikely that the apparent competition between Foodpanda and Pathao will remain this way forever. "With the apparent shutdown of HungryNaki, we're looking at a potential 'winner takes all' case in the food delivery space," noted Kader.

The online food delivery market as a whole will surely sustain, experts opined. "Once people are used to any convenience, they won't turn away so easily. But food delivery service has to spread across the country. If it can deliver home-cooked, healthy food at a reasonable price, it will definitely survive," said Kader. 

But there is a catch. "Online food delivery startups will have to be considerate while charging their commissions. If it's too high, there may come a time when most restaurants will prefer delivering food on their own," concluded Almas Kabir.