They say there is no such thing as a free lunch. Historically, a free lunch is a sales enticement that offers a meal at no cost in order to attract customers and increase revenues from other offerings. It was a tradition once common in saloons in many places in the United States, with the phrase appearing in U.S. literature from about 1870 to the 1920s. These establishments included a “free” lunch, varying from rudimentary to quite elaborate, with the purchase of at least one drink. These free lunches were typically worth far more than the price of a single drink. The saloon-keeper relied on the expectation that most customers would buy more than one drink, and that the practice would build patronage for other times of day. Free food or drink is sometimes supplied in contemporary times, often by gambling establishments such as casinos. The saying “there ain’t no such thing as a free lunch” refers to this custom, meaning that things which appear to be free are always paid for in some way.
In India, in recent times, with the advent of smartphones and a internet connection, a lot of food delivery apps are coming up. Especially in Bangalore, being the IT capital of the country, there is a plethora of startups concerning easy to access food delivery apps for the on-the-go IT company man. Primarily, these startups are founded by out of college bored of job men and women who somehow convince a VC to invest in their company. The modus operandi is usually one of two things.
- They open up as a restaurant aggregator like FoodPanda or Zomato etc. If you were to go to the restaurant directly or order directly through their phone number, let us say you pay ₹ 100 for a meal. However, if you order using such apps, the price is marked up by usually 20%, effectively making the price ₹ 120 and on the top of that they offer a discount of 15% finally bringing down the price to ₹ 102. The difference of ₹ 2 is what makes the profit.
- They open up their own cloud kitchens in the busiest business hotspots around the city and supply orders directly through their. These type of apps are not mediators but a restaurant of their own. Example – FreshMenu, FAASOS, MOJO Pizza.
So where does the concept of free lunch come within all this? Well for one, the businesses do need to promote their product and build a customer base. So at the expense of the VC money, they offer attractive kickbacks like 100% cashback and First Order Free which gains a lot of customers in early days. It is not like only the small players are doing it. Google launched Areo in April this year and offered ₹ 200 off on any order through three of its partnered apps (Box8, FreshMenu, FAASOS). I remember the “first order only” frenzy back in my college hostel, a same poor chap had to come everytime someone placed an order through the app. One of my friends even asked the delivery boy to give his phone so that he can order through his phone number and get another free meal.
It can’t all be true now can it? After all there is no such thing as a free lunch. You might think that offering free food initially will gain loyal customers, but that is really not the case. Save four or five big scale players like FoodPanda or Swiggy, most other such start ups have failed, ever heard of MomoE or TinyOwl? Where did they go wrong? Well first of all, the food quality wasn’t up to the mark and items were criminally overpriced. Why would I want to eat half a plate of Gobhi Manchurian for ₹ 300 when I can have a stomach full of Hyderabadi Chicken Biryani and a side of chicken kababs for ₹ 200. Secondly, the competition wasn’t healthy. 90% of these startups are in the five largest cities of India, most of them aggregated in Mumbai, Bangalore and Delhi. You wouldn’t find such apps in say, Lucknow or Indore. Even within Bangalore, the service is highly localized. My friend was standing 4 km away from the hostel on his way back and he wanted to eat pizza, so he opened the MOJO Pizza app (with ₹ 250 cashback mind you) so that the pizza will be there when he gets home but he immediately got a notification that “Sorry we don’t serve in this area”. In the end, he had to come back and order from the hostel itself for the service to work.
In a nutshell, it can be said that we enjoyed a few free lunches at the expense of the rich VC money, with no immediate repercussions. It remains to be seen what will be the future of large players now and how well can a new player adopt in an industry where competition is cut throat and margin is low not to mention the varying tastes of people across cities, towns and even localities.
So what is your favorite food and what will be your reaction if some rich suited up guy offers it to you for free? Let me know in the comments section. If you are not from India, please tell me how the food start up scene is in your country in the comments section.