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Tue 25 Aug 2015 04:25 PM

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Food for entrepreneurial thought

Tamara Pupic investigates the opportunities for F&B start-ups in the region

Food for entrepreneurial thought

Customer obsession has been a driver for countless start-ups to thrive over the years.

In the food and beverages sector, it seems that the obsessions of customers themselves are also an inexhaustible source of new business ideas.

“Both locals and expats had to spend a lot of money on buying goods and trying to get the targeted taste and quality, but their expectations were not always met,” says Vasso Kousathana, the founder and managing director of Award Deli, a Dubai-based online shopping portal for award-winning food products.

A newcomer on the emirate’s online grocery shopping scene, Kousathana is the first to launch an award-winning-products-only concept. The portal now offers around 52 different products which have all been awarded by independent, internationally recognised taste experts.

“Rather than the consumers having to rely on word of mouth, purchase experiments or subjective recommendations, they can now simply make their purchase decisions on the best taste guaranteed by the awards the products have won,” she adds.

A growing number of food-related start-ups worldwide have been using technology to disrupt the industry, making the lives of consumers easier or responding to their increasing demands.

From online grocery shopping to online food delivery platforms, rent-a-chef options, new street food, high end restaurants, and introducing new food categories such as meatless chicken strips or egg-free mayonnaise, the list of food-related innovations appears endless.

Investors have also been bullish on the prospects. According to CB Insights, a venture-capital researcher, the US venture capital-backed food tech companies raised $1.07 billion in 2014, which is a 272 percent rise year-on-year.

Embracing the mobile shift worldwide will further boost the growth of online grocery shopping and food delivery, with the sales of the former alone expected to hit $18 billion by the end of 2018, according to the business research service at Business Insider.

With the most recent big exit in the GCC region being an acquisition of a food takeaway platform – Rocket Internet, a Berlin-based e-commerce group, acquired Kuwait’s online food delivery portal, Talabat.com for $170 million in March – the food tech wave is slowly, but surely hitting these shores.

Dubai’s first online supermarket store, Trolley.ae, commenced operations in February 2012 with a pilot implementation covering The Palm Jumeirah, Dubai Marina and Jumeirah Lakes Towers. It has since expanded to include Business Bay, DIFC and most of Bur Dubai.

Omar Awwad, CEO of Trolley.ae, says the company’s growth is measured by the increase in the number of orders and number of registered users, and, secondly, by the adaptation level of users.

He says: “For the first, we have witnessed a great adaptation when the service was first launched in 2012 and, as a new service, we have been doubling our orders for the first two years. We are now on the double digit growth path year-to-year.”

Often described as a busy and on the go person, using a smartphone and having Internet access every step of the way, a typical Dubai resident is a complicated customer to cater to.

After working long hours, he or she prefers to eat out and choose from gastronomic diversity due to the city’s 200-plus nationalities. The findings of the KPMG 2015 Food and Beverage Survey for the UAE reveal that 66 percent of the respondents eat dinner out at least once during the week with an average spend of AED120 per person.

When staying at home, the survey suggests residents increasingly opt for organic and/or healthy products and require greater convenience in grocery shopping or food delivery.

Awwad adds that recently more than 15,000 products distributed into 14 main categories have been available through its mobile app launched on both Android and iOS. With the app in place the company expects the number of users to grow, although 36 percent of them are already making online orders – 29 percent use mobile devices while seven percent use tablets. 

“At the beginning, people were testing the services and orders,” he adds about the change in consumer preferences they have experienced. “They [orders] were mainly around nonperishable items like general household stuff, canned food, packs, and similar. Today, our top items being ordered are fresh products of fruits, vegetables and meat.”

Awwad predicts that big data will shape the online grocery shopping industry and require companies to adapt to customer behaviours and be closer to their needs. “Global trends show a good five to seven percent of adaptation of online grocery versus conventional,” he says.

“We are not half way through those numbers in our region, however, these numbers are expected to grow regionally and globally as technology evolves.”

Charles S Boghos, the owner and founder of Chez Charles, a Dubai-based online gourmet food shopping portal and catering company, says: “A fantastic meal is easily done with fantastic produce. The ingredients are 80 percent of a good meal.”

Passionate about food, the Lebanese entrepreneur used to travel and source ingredients that didn’t exist in Dubai. However, in 2012 he decided to quit his career in advertising, and set up Chez Charles, which now offers 11 distinctive food categories with free delivery for minimum orders of AED200.

In the course of the past three years, Boghos has developed his online portal to become a base for further business expansion.

“The online gourmet store is the backbone of the company, but is not the business driver. What is driving the company is the private chef and catering side because of the skills that we have on board,” he says.

The decision to expand into catering came from his insight that people in Dubai look for special experiences.

“They evolve whenever something new opens, they talk a lot about it and try to put it in a folder that fits whatever suits them,” he says. “They say, for example, this place is good for music and drinks.

“They also request more at-home experiences. Although there are a lot of restaurants in Dubai, not many are very good ones. Good ones you’ll have, but not very good ones. In summary, they look for experiences and we provide experiences.”

As opposed to catering, Kıvanç Arkaç, CEO of Foodonclick.com, an online food delivery portal set up in Dubai in 2011, says their business model is a conventional food delivery B2C business. It records 200 percent growth year-on-year, he says.

“It is growing more rapidly here than around the world,” Arkaç told StartUp before the Startup Grind Dubai at the Hult International Business School, where he shared his insights as a CEO of an e-commerce company with a number of students.

“It’s growing because people are getting more attached to technology. It’s easier to order now with apps and platforms like ours. Time is more important to you now.

“But it is growing in general. It’s a very big business. It has been estimated all around the globe, just delivery, to be around a $100 billion business.”

And Arkaç knows a lot about big numbers.

Yemeksepeti, a Turkey-based food ordering portal, whose regional offshoot is Foodonclick, was acquired by Delivery Hero, a Berlin-based food delivery service in which Rocket Internet owns more than 30 percent, for $589 million in May 2015.

Not only has the acquisition surpassed the amount paid for Kuwait’s Talabat.com, but it has become the biggest exit within the online food delivery sector worldwide.

The sought-after business model around the world has obviously found fertile ground in the region. Arkaç says that its digital food court, headquartered in Dubai Internet City, has grown to over 300,000 registered users and around 120,000 orders per month. 

His next target is to take the lead in the transition from phone to online ordering.

Interestingly, another Dubai-based online food ordering portal, Eateasily.com, has already elevated this transition to another level. In 2013, it launched an offline food ordering mobile application.

A few minutes after ordering food through the app, which doesn’t require a WiFi or 3G connection, the order is submitted to the restaurant while the person receives an SMS confirming the order.

When asked about the challenges encountered during the 22 months he has been leading Foodonclick in Dubai, Arkaç says: “The industry is not that much ready here, and by that I mean the delivery service.

“You have to have your food delivered in less than, let’s say, 45 minutes. What we deal with is psychology. Imagine that you go to a restaurant and they look at you for 45 minutes, but they don’t serve you.

“When you order, you don’t want to wait for an hour. So it’s not a different situation whether you are in a restaurant or you order. You are the same customer and you pay the same money.”

The late delivery, he says, affects the company’s brand although it’s not part of their responsibility.

When asked by the moderator whether Foodonclick was a $1 billion brand, Arkaç said there was a potential for that high valuation, but declined to reveal any details. “It’s complicated,” he said.

As a food entrepreneur at heart, Boghos is quite the opposite when it comes to seeking high profits, scaling quickly or franchising which, he says, is “a threatening thing to do for a young brand.”

“I have a philosophy that we’re building a brand, and money will come at a later stage. If I wanted to make money fast, I would have stayed in the corporate world,” he explains.

“The online grocery was the phase one, and private chefs phase two, so now we’re going to push catering full-fledge, then the restaurant, and then we’re going to expand out of Dubai.”

A step-by-step approach to building a brand has helped him get familiar with the ins and outs of the city’s food scene, which in his opinion is still evolving. “It’s still in a junior phase, and we will see a lot more coming in, and a lot more coming out as well because the cost of operation is becoming too high,” he says.

Despite the constant influx of new restaurants due to the city’s predominant expat population and an eating out culture, he opines that the opening of two international restaurant brands, Zuma and La Petite Maison, proved a game changer.

“They’ve changed the food scene in Dubai,” he says. “Everybody wanted to catch up with them by doing better or benchmarking against them which in my opinion is wrong because a lot of high end restaurants that tried to be like one of them didn’t succeed.

“In the restaurant and food industry there are so many ideas, so many varieties, why focus on being another one? This is basically what we did. We didn’t want to be like anyone, we just wanted to be ourselves, and we worked very hard on having full differentiation versus other people in town.”

The company was founded via an investment of AED450,000 by his father and himself. He resisted taking investors on board at an early stage and preferred to keep re-investing profits into the business.

As we speak, the company is preparing to take a new leap of faith. The 15-strong team will more than triple its number by September, and move to a new central kitchen and bigger warehouse in Business Bay.

The big move is due to the two investors coming on board.

Boghos says: “The idea is that we have enough brand equity in the market, our brand is very strong, and we can’t cope with the demand that we have.

“We’ve now reached a level where we have to expand and grow bigger so that we can answer to that demand.

“Everyone wants to invest in a project they believe in, especially in Dubai. A lot of people offered investments, but our investors are people that I really trust and believe in, and they believe in me, I’ve known them for ages.”

Explaining that he will remain the majority shareholder, he declines to reveal the terms of the agreement but adds that the overall investment will be around AED9 million from the establishment of the company. “Money wasn’t the criteria for investment,” he says.

The emirate’s entrepreneurial ecosystem is also slowly shifting its focus to helping entrepreneurs who aim to enter the food industry sector. Abu Dhabi’s Khalifa Fund for Enterprise Development was in talks with the United Arab University in Al Ain to launch a food innovation training programme – The Kitchen Incubator – to encourage UAE nationals to seize new opportunities.

More concrete steps have recently been taken by Aseel, a Dubai-based consultancy, which launched Imago, the MENA’s first accelerator dedicated to helping food and beverage companies scale.

Targeting growth-stage entrepreneurs, the three-month programme commenced in May this year.

Speaking about the future market opportunities for all of them, Boghos points out: “I see that the food truck trend is going to grow in Dubai.

“It has started with one or two and now there are a lot of permits that are in the pipeline. I think that Dubai lacks the real street approach in food.

“And there is a big opportunity in the mid segment for good food, mid-range food segment with an average check of AED100, which is something that is very rare.

“Now, you barely eat good food in Dubai if you pay AED100.”