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Is FoodPanda falling into a Trap by offering Deep Discounts

Industry analysts have always argued that deep discounts can get you deal hunters but never loyal customers. However, this conventional wisdom hardly seems to bother FoodPanda as it is busy offering deep discounts to customers. The Ola owned company has, of course, resorted to this seemingly desperate strategy in order to catch up with Zomato and Swiggy.

To give an idea about how deep are FoodPanda’s current discounts then customers can buy a Chicken Biryani worth Rs 149 for merely Rs 49 on a Saturday afternoon. If customers want to enjoy Chicken Tikka or Mutton Kebab along with Biryani then that will cost them hardly Rs 109.  Besides, a popular sweet dish like gulab Jamun is delivered at your doorsteps for merely Rs 9.

Photo Source: Ola cabs/Facebook

 

Things get further better as customers enjoy a healthy cashback by paying their FoodPanda bill through Paytm.

From a business perspective, these discounts offered by FoodPanda stands at approximately 70%, higher than the current industry discounts, which hovers between 25% to 60%. Understandably, the current discount rates are being determined by incumbent leaders Swiggy and Zomato.

FoodPanda is obviously footing a heavy bill in order to play the catch-up game. However, most analysts are wondering whether this game will prove a little too risky for the food delivery company.

But FoodPanda is oozing with confidence as it is busy playing this apparently risky game. This confidence though is not without any reason. It essentially stems from the heydays when Ola used the same discount strategy to compete with Uber. Those good old days of deep discounts may have long vanished, but it certainly helped Ola in standing up against a deep-pocketed player like Uber.

Today if Ola is one of the formidable players then it is partly because it managed to play the risky game of discounts quite wisely. While this risky game may have led to high cash burn rate, it helped the homegrown cab hailing company in undoing the competition and rapidly scaling up the business.

Now Ola is confident that it can execute the same strategy with possibly minimum errors for its subsidiary company. However, it would be extremely wise for Ola to consider the unpredictable dynamics that surround India’s foodtech sector.  Of course, the cab-hailing industry is just as unpredictable and competitive, but it would be highly unwise if Ola overlooks the fact that the foodtech sector is going through an extremely interesting phase.

What is really so interesting about it? Well, it was not too long ago that Zomato and Swiggy were struggling to raise funds due to weak balance sheets. Both companies had to do a lot of cost-cutting and tremendous hard work to reclaim the investor’s confidence.  Today these startups are in the thick of fundraising game only because they have a favorable balance sheet to show to their investors.  And herein lies the lesson for FoodPanda.

FoodPanda will have to keep a laser focus on its balance sheet to evade the trap that is most often set up by heavy discounting strategy. Soon or later the balance sheet pressure will force the company to bring its discount within the industry standard of 25% – 60%.  Hopefully, then it won’t find the pressure too overwhelming to bear. After all, it is all too easy to miss the plot when you are extremely busy writing a script with a happy ending. Let’s all hope that things do end happily for FoodPanda.

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