We Southeast Asians are probably obsessed with our food: we not only instagram the hell out of it, but also debate with our friendly neighbor about origins of some popular regional dishes. We also see aficionados building more and more food related tech or ‘tech’ startups. Market sizing for this is probably the easiest: anyone has got to eat, and at a population of 641 million, Southeast Asia do have a lot of mouths to feed. For that reason, many investors in the region voted with their stashes of cash.
Cost structure kills
Growing up in Kuala Lumpur, and having lived in Bangkok and Singapore – I never had any problem getting food, usually by walking just a few steps. The low cost of food does not do much to spur the growth of pure food delivery (Foodpanda, Deliveroo) companies, as it often cost the price of the meal (and maybe more) just to deliver.
The cost of delivery does not go down when we scale up the delivery team, or get more orders. In fact, the experience in China shows that as delivery teams become bigger, management costs rise faster in proportion. In short it is quite an unscalable model unless the unique economics is very attractive, which in many parts of this region it is not.
In addition, due to the ever-availability of restaurants within a stone-throw of a distance, Groupon (and their reincarnations such as Eatigo and Fave) which became a hit a few years ago were (or would be) quick to crumble. People would only travel out of their way if – the food was really worth to die for (or) if there are good discounts.
At the same time, online restaurants are also popping up around the region, operating their very own central kitchen, ordering frontend and delivery fleet. This model can probably survive but difficult to scale. For a very simple reason: people do not go to the same restaurant to eat every day – the ones some attend everyday are called canteens. No matter how fancy or how long your menu is, people get bored and want to try something new very very soon.
A harder (to scale or to succeed) set of business models is probably restaurant-tech. There are 5000 tonnes of companies trying to build POS, ordering app, loyalty programme, reward cards for restaurants. Most are making futile effort – Facebook can easily kill off such businesses, just like WeChat and Alipay (through Koubei) are doing in China. In addition, restaurants (especially the long tail) operate with small team with thin margins – they want anything that actually brings more revenue (typically more customers) or reduce cost (typically manpower).
Not all is lost though, as content providers (for food content) such as home-grown Singaporean network – Asian Food Channel continues to dominate (AFC was sold for US$66 million in 2013), probably the more profitable food-related businesses out there. The potential for food tech in SEA is there, and not difficult to understand – you just need to apply the same logic why so many people watch soccer rather than play it.
Ripe time to go upstream
Anyways, every cloud has silver lining. We see that “Agri-tech” is ripe of disruption, and unfortunately there has not been enough companies yet in this subcategory. It has pretty been an unwanted child and perceived as uncool. After all, who wants to till the soil and water the plants? This mindset should be quick to change. Not only is agri-tech more profitable, it is also very scalable. We have been in close touch with some friends at an Agriculture and Forestry University – the developments are encouraging.
Besides, global flash floods, and natural disasters have in the past few years help drive the supply of fresh produce down, and the prices of some crops and agriculture (and aquaculture) produce up! This will also put agriculture to be more in the ‘controlled’ environment with hydroponics etc. Economies of scale will hopefully push the costs down and make hydroponic production affordable without any subsidy.
Food safety is a big concern in China. To alleviate such fears, a lot of money went into ‘transparent’ farming. Ding Lei, the founder of NetEast, one of the biggest internet companies in China, actually built a vertically integrated pork farm.
The entire process is optimised and monitored – this extra assurance really allows people to pay much more for each kilo of pork. In Southeast Asia people never cared too much where their food is from – but it just takes two or three food scandals for this to change.
Increasing upstream efficiencies
Gobasco, a New Delhi based Agri-tech is one of the growing list of companies using data and AI to increase supply-chain efficiencies and reduce wastage. It is quite a common occurrence that fresh produce become bad quickly due to bad logistics. In addition, farmers often depend on only big buyers to purchase their produce. This reduces their bargaining power, and as a result, farmers in India (and Southeast Asia) barely make a living. If technology can be leveraged to increase yield, reduce wastage, and bring a better living to farmers, this will can be the next big thing!
In Singapore, Garuda Robotics makes drones to assist farmers in gathering data, providing aerial view in their estate. Even as we speak, farmers in China are already using drones to help manage crops – increasing work efficiency and crop yield. The future of fully-automated farms is not far and it is our view that Southeast Asia is still under-investing (at its own peril) in upstream agri-tech, which could prove to be a lost opportunity.