Sadia Nowshin, a 21-year-old student at the University of Dhaka, used to frequently cycle through various food delivery apps on her smartphone. She didn’t pick apps based on the speed of delivery, service areas, or cuisine options — rather, she’d be looking at which app gave her the biggest discount. Then, one day, the discounts stopped.
“When I discovered [that] two food delivery companies stopped discounts, I just uninstalled them from my mobile,” Nowshin told Rest of World. “Why would I keep them on my mobile if they are not helping me buy food at a discount and taking extra space.”
Nowshin is one of many Bangladeshis reconsidering their usage of food delivery apps. App-based food ordering has become a part of urban life in the country, especially after the pandemic lockdowns. In this price-sensitive market, customers are always on the lookout for discounts and offers.
But, with venture capital and private equity investments increasingly harder to come by, local food delivery startups in Bangladesh have struggled to offer the discounts that had brought in so many customers. As a result, local startup Shohoz shut its food delivery business last year. Another app, HungryNaki, recently scaled down its business significantly.
As local Bangladeshi startups falter, Foodpanda, the service owned by German multinational Delivery Hero, is swooping in. The company now controls nearly 65% of the market share in the country’s food delivery industry, estimated to be worth over $43 million in early 2021.
“Food delivery business requires a lot of investment in addition to manpower to survive,” Mohammad Ridhwanul Haq, a professor at the University of Dhaka’s Institute of Business Administration, told Rest of World. “Given the mindset of the customer in Bangladesh, if you want to make a profit in this business, you have to be patient along with investment.” In 2021, the total startup funding in Bangladesh stood at around $380 million, of which $250 million went to just one company: fintech major, bKash.
Prior to the pandemic, in 2019, Bangladesh’s food delivery sector had four dominant players: local startups HungryNaki, Shohoz Food and Pathao Food, and the international giant Foodpanda.
In October 2021, Shohoz, which makes most of its money from e-ticketing services, shut its food delivery service following a “strategic business decision.”
In July this year, HungryNaki, Bangladesh’s first homegrown food delivery startup, reduced its serviceable area from 30 regions to 17 regions — restricting its services largely to Dhaka and Chattogram. For a company with grand ambitions, this represented a major setback. Launched in 2013, HungryNaki was acquired by Daraz, the Alibaba-owned e-commerce major, in 2021. At the time of the buyout, the startup planned to expand to 64 districts across Bangladesh.
The market share of the other local player, Pathao Food, has halved to just 20% since 2019 as it struggled to offer heavy discounts, a senior company official told Rest of World. The official requested anonymity for this story, as he is not authorized to share these figures with the media. Pathao refused Rest of World’s request for comment for this story.
Following the publication of the story, Pathao’s CEO Fahim Ahmed wrote to Rest of World to express confidence about his company’s success.
“Pathao is the only profitable food delivery business in Bangladesh. Like the rest of Pathao’s business (ride-hailing and courier services), Pathao Food is EBITDA positive and cash-flow positive,” he wrote in an email. “Over the past couple of years, we have seen multiple competitors shut down or significantly downscale their operations as a result of an unsustainable (i.e. unprofitable) business model. Basic due diligence would reveal that one of our remaining competitors widened its financial losses by 37.6 percent to Euro 23.22 million in Bangladesh in 2021, in a total market size your own report estimates to be just USD 43 million in 2021, raising questions about the continued viability of its operations.”
In June 2020, Uber also shut its food delivery service, Uber Eats, in the country — just a year after its launch. The decision was part of Chief Executive Dara Khosrowshahi’s plans to restructure the company.
Meanwhile, Foodpanda, which is currently operational in 64 Bangladeshi districts, plans to keep investing in offering discounts to consumers, a high-ranking employee, who has access to strategic thinking, told Rest of World, requesting anonymity as he is not authorized to speak to the media. Foodpanda refused Rest of World’s request for comment for this story.
Experts believe the global startup funding crunch could make things worse for homegrown players in Bangladesh’s food delivery sector, leading to a Foodpanda monopoly.
“Food delivery services are more or less competitive in the world,” Fahim Mashroor, former president of the Bangladesh Association of Software & Information Services (BASIS), told Rest of World. “In this situation, it becomes difficult to survive, especially for small domestic companies. As a result, the market is taken over by the big guys. For this reason, Foodpanda is the only company that is continuing the business and is the market leader right now.”
Food delivery companies need millions of dollars in investment to offer discounts to lure customers and stay afloat before they turn profitable — which can often take over a decade in some cases. In India, for instance, unicorns like Zomato and Swiggy have continued to bleed millions of dollars since their launch in 2008 and 2014, respectively. The two companies have managed to stay afloat because of constant VC investment.
Zomato has so far raised $2.15 billion in at least 20 funding rounds, according to market data and intelligence firm Tracxn. Swiggy has raised $3.57 billion in at least 15 rounds.
Some experts believe the Bangladeshi government needs to step in to save the local food delivery startups. Mashroor said the government must come up with a system like India’s Open Network for Digital Commerce (ONDC) to prevent the food delivery industry from becoming a monopoly. Touted as the “Amazon slayer,” ONDC is a platform launched by the Indian government to help small, domestic e-commerce companies survive in the market.
“Such a model can be introduced in Bangladesh to maintain fair competition in the market,” Mashroor said.