Why did food delivery platform Yumist halt operations in Bengaluru

On Monday, food tech startup Yumist, which operates in the daily meals segment, announced the halting of its Bengaluru operations.

In a company blogpost, it cited not owning a kitchen facility as the hinderance for the startup in providing quality service and innovation in menu to its Bengaluru customers. However, the company terms the development as a 'pause' in its operations in the city, rather than a decisive end.

Started in November 2014, the company recently raised $2 million in pre-Series A from Ronnie Screwvala’s fund Unilazer Ventures and existing investors Orios Venture Partners in December 2015. Having a team of 180 members, the firm recently opened its 12,000-sq.ft., state-of-art-kitchen in NCR. The company also claims to have doubled its orders in the last three weeks, while being gross margin profitable.

As of December 2015, the firm reported to be growing at 20 percent week-on-week, with 65-70 percent of its orders coming through its mobile app. Yumist states its plans to expand its offerings on its menu, while retaining the current template of meal boxes, and 15-second ordering experience. Besides lunch and dinner, Yumist is also looking to expand its offerings to all-day options, including breakfast and snacks.

Reducing margins and scaling down 

This is the third company to scale down operations in April; PepperTap, and ex-Housing Co-founder's startup Amber Wellness shut down their operations too. The reason behind the demise of the companies was dropping margins. Hinting on this reduction in margins, Navneet Singh, CEO and Founder, PepperTap, says in his blog:

In a world where everything for sale through an app (think electronics, taxis, food) is synonymous with vastly cheaper prices than physical stores, this exercise often simply resulted in higher outright discounts with every passing week.

On the other end, explaining from their personal experience, Abhimanyu Dhamija, Co-founder of on-demand beauty service startup Amber Wellness said

“We were not making local supply-demand match, and logistics costs were going through the roof. On the customer side, this was not something completely new that people want to pay highly to try out. On-demand models work in an environment where there is enough liquidity on the demand side and the supply side and there is localised match between the two. It requires a lot of capital investment on both sides.”

But Alok Jain, co-founder and CEO, Yumist says that the margins for orders in Bengaluru was always higher.

Our gross margins for Bengaluru were almost 12 per cent higher than that of Delhi. This is because more meals are delivered per order(at same location) owing to the high number of startup offices in the city. More individuals ordering from the same place results in more deliveries at the cost of one.

Further, Alok claims that Bengaluru scaled quickly and reached the same traction level as Delhi, within four months of starting up in the city. This isn't inclusive of Gurugram, which continues the top city for Yumist.

In the first quarter of 2016, as much as $1.42 billion was pumped into startups, across 307 deals. However, only 11 of the above were Series-B deals, thus raising concern over the follow-up investment drought. Further, the talks between investors and startup founders have seen a shift, with sharper focus on unit economics and profitability.

The foodtech debacle

In 2015, Bengaluru saw multiple foodtech companies like Dazo, Spoonjoy and Eatlo shutting down or getting acqui-hired (Spoonjoy was acqui-hired by Grofers).

Today, the city has Internet-based restaurants like Freshmenu, Eatfresh, and InnerChef operating along with smaller players like Baba Fattoush catering to the hunger pangs. Last year, HungerBox halted operations for a few months, only to pivot into a B2B office and corporate catering platform. Finally, there are delivery platforms like Swiggy and Zomato, which seem to be making the most out of the other shut-downs.

With limited risk capital and increased pressure to maintain high margins, it remains to be seen how many more startups will survive, scale down or fail this year.

Website: www.yumist.com