Abstract
This teaching case looks at the food-tech industry in India, the cloud kitchen space, in general, and a key player in this space FreshMenu, in particular. The FreshMenu case views two competing objectives: the scalability versus profitability of an internet-run entrepreneurial firm. The firm operates in an entrepreneurial ecosystem with different dynamics than traditional businesses. The case offers a historical perspective of the food-tech industry in India, the development of the cloud kitchen space, and the latter’s pros and cons. The case focuses on the evolution of FreshMenu and its founder’s dilemma. Despite being one of the first movers in the cloud kitchen space, FreshMenu has come across as the has-been for scalability and funding. Its founder ended up pitted against her close competitors—Rebel Foods Private Limited, Innerchef and Poncho Hospitality Limited. In an entrepreneurial world, where scalability is valued more than profitability, are the founder’s fears real or mythical? As the famous fable ‘The Hare and the Tortoise’ unfolded in the mind of FreshMenu’s founder, the picture of FreshMenu’s position became clearer.
Discussion Questions
How can an entrepreneurial company create an equilibrium between competing objectives of the following nature?
Growth versus profitability.
Short-term versus long-term goals.
The role of funding in balancing these competing objectives.
How does FoodVista Private Limited rank when compared to its competitor in terms of the key financial metrics mentioned in the Exhibit and Figures of the teaching case? Derive conclusions about FoodVista Private Limited’s position versus its competitors. While Rashmi Daga wants her company to be a ‘Tortoise’, will it be worthwhile for her company to be a ‘Hare’ in the immediate context?
Should Rashmi be concerned with Rebel Foods Private Limited’s valuation being almost ten times more than that of her company FoodVista Private Limited? Do you think FoodVista Private Limited can have a comparable or a better valuation than Rebel Foods Private Limited in the near future?
What is the value proposition of FoodVista Private Limited?
Early morning in Mumbai in February 2020, Rashmi Daga, the founder of FreshMenu, woke up to the news that Rebel Foods, FreshMenu’s closest competitor in the cloud kitchen space, raised $12.7 million in debt funding from a group of investors. Rebel Foods was valued at about $ 500 million, having last raised $120 million in equity in 2019.
Rashmi Daga began to wonder what the future had in store for FreshMenu. Rebel Foods Private Limited looked like the winning ‘Roman Emperor’ that came, saw and conquered the cloud kitchen market. She recollected and tried to understand why FreshMenu, despite being one of the first movers in the cloud kitchen arena, lagged behind Rebel Foods Private Limited, which was still struggling to be profitable, unlike FreshMenu, in the race for funds and the number of cloud kitchens and cities to which it catered.
The scalability versus profitability dilemma posed unique challenges: the factors affecting the growth and profitability of traditional businesses varied considerably from those that affect internet-run businesses. The age-old perspective on the dichotomous variables seemed outdated for her business (Dodd & Favaro, 2006). It was a time for a ‘fresh’ solution to the age-old dilemma. As the famous fable ‘The Hare and the Tortoise’ unfolded in Rashmi Daga’s mind, she began to wonder if she should scale up FreshMenu or focus on its profitability at this point in its trajectory. The fable perceived the hare as the apparent winner. However, the fable concluded with the unconventional winner, the tortoise, thus rewarding the slow and steady. Was the founder of FreshMenu fine with being the ‘tortoise’ from the famous original fable that believed in the steadiness and profitability of the company, or did she want to be the ‘hare’ that ran the race a bit too fast only to collapse in the end?
Company Background
The Food-tech Industry Development in India
Food tech was a loosely defined term in India. All internet-based food businesses were under this banner, from restaurant aggregators to ordering platforms to delivery-only players to cloud kitchens. Food tech’s origins could be traced to the mid-2000s in India, particularly in 2006, when Burrp came into existence.
The launch of Burrp marked the conspicuous use of technology in the food-tech industry. It was the first time a company tried to bring technology to the restaurant-discovery area in India. Burrp was the first website in India to allow users to look for the best user-rated restaurants, cafés and bars near a given area. Burrp was created based on the success of its US counterpart, Yelp, a business-directory service and crowd-sourced review forum. It developed, hosted and marketed the Yelp.com website and the Yelp mobile app that published crowd-sourced reviews about businesses. Like Yelp, Burrp’s initial business model revolved around restaurant discovery and listing. By 2009, Burrp had a substantial market share in Mumbai and Bengaluru, India’s two largest and most economically significant cities (Kashyaap, 2017).
In 2008, Zomato emerged with a similar business idea. Unlike Burrp, which charged a premium for listing restaurants, Zomato listed the restaurants for free. As a result, there was an exodus of restaurants to Zomato. The number of restaurants grew on Zomato, as did the consumers who accessed Zomato for restaurant discovery. Thus, Zomato grew by leaps and bounds in the food technology space in India (Kashyaap, 2017).
The food-discovery game began to expand slowly in the food-tech space. Advertisements, premium listings and email/SMS marketing were the primary revenue sources for food-technology businesses. Early in 2010, food discovery companies began to go beyond premium listings and restaurant advertisements and ventured into online food aggregation, ordering and delivery as a natural sequence of growth. This move triggered a rush of companies jumping on the bandwagon. This started a deluge of food-tech companies trying to consume a large share of India’s food industry.
By 2015, the food-tech industry had become a red ocean, with fierce competition and marketing wars waged for market share. Many food-tech companies across the spectrum, from the first movers to the copycats, shut down, creating a graveyard of sorts.
Multiple factors contributed to this blood bath in the food-tech industry. These included wavering customer loyalty to food-tech brands, unpredictable consumer behaviour mainly related to food, deep discounts offered by food aggregators and delivery platforms, a great deal of cash burnt on marketing strategies such as advertising and sales promotion and companies pivoting too often from one business model to another. For instance, Box8 started as a quick-service restaurant that served Mexican cuisine in 2011 and ended up as a cloud kitchen company in 2014 that served a range of menus to customers in attractive packaging. A combination of these variables led to the early doom of many food-tech companies that started enthusiastically (Apurva, 2019).
Consequently, a wave of consolidation hit the food-tech industry, featuring significant mergers and almost daily acquisitions that led to quicker inorganic growth and shorter time-to-market for stable food-tech companies. Concentration, instead of fragmentation, became the key to survival; big players needed more growth, and small ones were looking to exit. Companies tweaked their business models, acquired smaller food-tech businesses and introduced new marketing strategies to penetrate untapped markets and retain existing customers.
While food-tech startups like iTiffin, Dazo, Yumist and SpoonJoy had to shut down their operations, others like TinyOwl and TastyKhana started well but quickly became targets of the acquisition spree. The 2 years from 2015 to 2017 witnessed consolidation and correction that shaped the food-tech industry’s dynamics for years to come (Agarwal, 2018; Binu, 2017).
‘Corrections’ were ongoing, with the Ola-owned food delivery firm acquired cloud kitchen company HolaChef in October 2018 (Vijayakumar, 2018).
Disruption in the Food-tech Industry and the Emergence of Cloud Kitchens
Food aggregation, marketplace and delivery models were no longer the business models on which food-tech companies could rely. Thus, they started looking at newer concepts like a cloud kitchen. According to the market research company DataLabs, the market size of cloud kitchens was expected to reach $1.05 billion by 2023 at a CAGR of 13%, which presented an enormous potential for food-tech players (Sagar, 2017; Singh, 2014).
Cloud kitchens were the latest marvels to catch the eye of the food-tech industry. The business model of a cloud kitchen rested on a well-equipped kitchen and sound delivery, with no dine-in facility. This new concept attracted startups, independent entrepreneurs, established chefs, investors and online aggregators.
The cloud kitchen, an asset-light phenomenon, took the industry by storm, with participants fighting for a piece of the pie, referring to it as ‘the future of the food industry’.
The cloud kitchen model allowed higher command in the firm’s value chain compared with the asset-heavy business model of a physical restaurant. Such a business model offered lower operating costs and reduced inherent risks. It allowed an enterprise to focus on its key strengths instead of mainly managing its assets. Additionally, such a company could easily follow growth strategies like product or market development at the touch of a button and thereby build its capacity to reach a certain level of scalability with minimal incremental cost (Upadhyaya, 2015).
A cloud kitchen was a kitchen-centric business model that primarily handled food preparation, packaging and delivery. Cloud kitchens did not offer a physical space to sit and dine. Therefore, the focus remained primarily on food: its preparation, quality and packaging.
As a result, many food-tech companies were combining their love for cuisine and technology. A meal was no longer limited to a small or excellent dining restaurant. Cloud kitchens were changing the dining and restaurant experience by ensuring that both regular and exotic meals were delivered to the doorstep of consumers at the touch of a button.
Rental costs as a percentage of income were high universally and ranged from 6%–10% of the total sales generated by a restaurant in an urban area. This was in addition to other costs like food costs, payroll costs and the prime costs of a restaurant (Laube, n.d.). These costs cumulatively resulted in the overwhelmingly high costs of dine-in restaurants or those in prime locations, making it a capital-intensive and less rewarding business. As a result, higher costs were passed onto customers, making it more difficult for customers to engage in regular transactions with restaurants. This problem was compounded when restaurant owners refused to discount prices for food aggregator and delivery platforms, as they already worked on wafer-thin margins.
Meanwhile, cloud kitchens not only reduced rental per square foot but also reduced the area of operation. This let kitchen operators focus on food rather than ambiance, furniture and other costs associated with a physical restaurant (Tandon, 2019).
Besides cloud kitchens being more scalable than dine-in restaurants, cloud kitchens could either integrate forward in terms of creating their delivery fleet or even open physical restaurants or integrate backwards by becoming suppliers of raw materials required for food preparation. With some key trends, the market was expected to grow significantly, given its low penetration, with significant room for players to grow and develop differentiated strategies (Cheema, 2019).
However, cloud kitchens were not as rosy as they appeared. One reason was that most food-tech platforms worldwide were technology companies that used logistic services to offer food delivery from (aggregated) restaurants on demand. To better control the value chain, restaurant aggregators and delivery companies acquired cloud kitchen companies or started their cloud kitchens. There was always this threat of forward integration by restaurant aggregators and delivery companies (Panchal, 2019).
Second, institutionally funded cloud kitchens with over $50 million in equity or debt invested in them had to operate more cloud kitchens, sell multiple brands and attract greater volume. Therefore, it became important for such a cloud kitchen company to scale up faster, boost its volume and reach a certain valuation so that institutional investors could decide whether they wanted to continue investing in cloud kitchens or exit when the cloud kitchen company reached a certain valuation (Sriram, 2020).
Third, unlike a physical restaurant, cloud kitchens did not interact with customers. In a cloud kitchen, customer experience with the food was limited. As a result, customers could not develop a long-lasting relationship with the cloud kitchen or the brands they offered. In experiential marketing, cloud kitchens were very limited in what they could offer (Panchal, 2019).
Fourth, inventory management was one of cloud kitchens’ biggest and most common challenges. With physical space being a limitation, cloud kitchens typically had to store stock for two to three days of orders. Therefore, cloud kitchens must have optimum inventory plans to avoid the refusal or non-availability of certain items on the menu (Cheema, 2019).
Fifth, cloud kitchen operators quickly realized that they must price their offerings at the lower end of a comparable-quality restaurant, as it is challenging for cloud kitchens to retain customers and ensure a certain volume.
The Genesis of FreshMenu, A Cloud Kitchen Company
Rashmi Daga’s foray into food began more than 5 years ago, on 19 August 2014, when she incorporated her company, ‘Food Vista India Private Limited’, and created a cloud kitchen brand called ‘FreshMenu’. A salesperson for most of her career and a graduate of the Indian Institute of Management Ahmedabad (IIM-Ahmedabad, a prestigious institute for management education in India), she believed that her sales exposure would help her tremendously as she set up her own business. She started her entrepreneurial trajectory with a startup called ‘Afday.com’, a platform for curated arts and art forms. However, despite all her efforts, ‘Afday.com’ failed to take off. Rashmi Daga was discouraged by this failure and decided to return to work for an employer. While she headed sales for startups like Bluestone and Ola Cabs, her entrepreneurial instincts did not subside completely. Her keen interest in food and her academic and professional background in technology took her to the unchartered intersection of food and technology.
Rashmi Daga’s initial entrepreneurial plan was to deliver recipes and ingredients for gourmet meals to customers, who would then prepare them. However, unlike the West, she realized that India did not have a do-it-yourself culture, and her entrepreneurial idea never really took off. The next thing that appealed to her sensibilities was an unexplored arena called cloud kitchens, a relatively newer concept than the traditional restaurant business.
To Rashmi Daga, the restaurant model seemed limited and not scalable enough to fulfil the growing aspirations of a food-tech business. The relatively low rentals, low operational costs and automation made starting a cloud kitchen an interesting proposition compared with a restaurant model (Sharda, n.d.).
A cloud kitchen that offered gourmet food from cuisines from around the world was a rare offering. Her cloud kitchen model focused on Western cuisine, with a strong assumption that Indian customers would not have set a benchmark yet in terms of price and taste for Western cuisine and would be more than willing to try such a cuisine rather than the traditional local cuisine, which was readily available. When an entrepreneurial company like FreshMenu offered a version of Mexican, Continental or Lebanese cuisine, it was more likely to be accepted than any version of Indian cuisine or those offered by a restaurant specializing in Indian cuisine. This premise became the central theme of FreshMenu. Food was also the ‘trickiest and stickiest’ part of human existence. FreshMenu boasted a repository of more than 1,200 cuisines from around the world, exclusively curated for the Indian palette. FreshMenu had recently diversified its portfolio by introducing emerging diet trends like keto and low carbohydrates (Soumya, 2017).
FreshMenu applied the cloud kitchen model before its competitors, such as Rebel Foods Private Limited and Box8, and stuck to this business model despite initial hiccups in comparison to Rebel Foods Private Limited and Poncho Hospitality Limited, which were forced to pivot from being quick service restaurants to cloud kitchens (Paul & Hector, 2017). FreshMenu was launched first in Bengaluru and spread to various parts of Mumbai, Delhi and the National Capital Region. To ensure that food—the core proposition—remained untouched and undiluted, Rashmi Daga decided to own the entire value chain, from procuring food supplies to part of the delivery (Kashyaap, 2015).
FreshMenu sought the right vendors and expert chefs, set up functional kitchens and perfect packaging and emphasized excellent logistics. In summary, it had better control over the value chain and, hence, better control of the unit economics.
‘If you do not do end-to-end, you don’t get the margins because of broken supply chains. A new (food) brand doesn’t inherit processes in this business. You have to iterate through all’ (Binu & Dearton, 2017; Janardhan, 2019).
The Business Model of FreshMenu
To stay true to its name, FoodVista Private Limited created the concept of an ‘innovation kitchen’ that rolled out different cuisines. The new product development team at FoodVista Private Limited rolled out approximately 60 new main courses in a year. The team constantly tried to invent intriguing food combinations. New flavours introduced to the world were constantly experimented on in the company’s innovation kitchen (Soumya, 2017).
In 2017, FreshMenu, then a nascent player in the food-tech industry, understood the importance of ‘returning customers’ compared to its current competitors, who were still struggling with their business models. To ensure that the platform had repeat customers, FreshMenu introduced a subscription-based model called ‘FreshClub’, which offered multiple benefits to its members. These included a specially curated menu, free delivery and discounted daily deals. FreshClub also offered a 15-day trial period for prospective members and leveraged this to a committed member on the platform (Economic Times, 2017).
The brand also had a corporate programme which, along with FreshClub, accounted for 30%–40% of its sales. The intent of such a programme, Daga says, is to give people the convenience of ordering without glitches: ‘We will have kiosks or a cash-and-carry counter in a few offices, or we could have the HR teams pre-book their office orders with us’ (Bali, 2019).
FreshMenu ensured that customers were less than 5 km away from its satellite kitchens so that freshly cooked food from their kitchens could be delivered promptly to the customer, retaining the freshness of the food. FreshMenu’s operations allowed for keeping the food fresh longer. The food was served as single meals and did not require reheating.
According to Rashmi Daga, almost 55% of its orders originated from two food aggregators and delivery companies, Swiggy and Zomato, while its website and app brought 45% of its total order volume. FreshMenu processed 13,000 orders daily, with an average order value of $5, as per the statistics available in January 2019 (Srivastava, 2019).
Marketing Communications at FreshMenu
With growing competition in the cloud kitchen space, FreshMenu spruced up its marketing efforts. In 2017, FreshMenu released two advertising campaigns that focused on the joy of group eating and a variety of mainstream and offbeat cuisines that offered by the company. The advertising campaigns highlighted the unique value proposition of FreshMenu—that they provide a multitude of international cuisines that were freshly prepared by expert chefs at a nearby kitchen at a price point ranging from $2 to $5 (exchange4media, 2017).
FreshMenu created a unique marketing effort by way of collaboration. FreshMenu worked extensively with key food influencers to launch a key influencer programme called ‘Incredibles’ that would eventually help FreshMenu connect with the top food influencers, influencing customers by creatively engaging them. This would result in word-of-mouth and, eventually, organic growth for the platform (Srivastav, 2017).
FreshMenu, in association with a content creation agency, ‘Don’t Be Content’, launched a magazine for its customers. The magazine was a one-of-its-kind content-marketing initiative from a food-tech company aiming to delight customers with refreshing and new content about everything food-related, including travel, food, culture and health; thus, the magazine’s apt title, ‘Food for Thought’. Moreover, FreshMenu also revamped its product offering by introducing a new app. The new user interface was much cleaner and offered customers a hassle-free experience. To increase the appeal of the new user interface, it focused on food instead of offers on display. The food illustrations were funky from well-known artists, thus bringing out a creative appeal on the user interface, apart from tracking user–buyer patterns and sending personalized recommendations and brand-related offers.
In 2018, FreshMenu, in association with the ‘Cupshup branding’, offered 2-month long, on-the-ground and below-the-line marketing activities organized in corporate offices to reach a wider audience. The activity was designed for corporate employees’ participation to allow them to finish their food in the shortest time possible. The winners were rewarded with freebies that had to be exclusively used on the FreshMenu app or website (M4G Bureau, 2018).
FreshMenu had been running various digital campaigns on social media, be it a food festival that highlighted different kinds of mainstream and offbeat cuisines that they sold or different schemes and menus offered on different days of the week (FreshMenu, 2020).
Specific Area of Interest: FreshMenu
Growth was traditionally considered extremely significant, and the entrepreneurial narrative supported this. Growth was accompanied by incentives like recognition in the fraternity, economies of scale, favourable shareholder and investor sentiment and profitability. Therefore, growth was considered a means to an end. However, the shortcoming of this hypothesis was that the entrepreneurial firms viewed it as an end to itself, ultimately losing sight of the final goal of profitability (Nicholls- Nixon, 2005).
This hypothesis became more prominent in the case of businesses run on the internet; the case in consideration was cloud kitchens. Cloud kitchens were becoming a proxy for physical restaurants as they could be scaled up easily. However, scaling up required a significant overhaul in pivoting the business models, increased marketing efforts, and other financial and non-financial resources. Cloud kitchens were primarily dependent on external funding to scale up their operations as they lacked the necessary resources, both financial and non-financial. Without desired funding or a crisis like COVID-19 could halt the scaling process. This could lead to an untimely exit or the demise of a business venture.
FreshMenu defied the popular narrative of scaling up. Rashmi realized that the trajectory to scale up a cloud kitchen in a fragile entrepreneurial ecosystem was fraught with challenges, including the lack of consistent funding, limited resources and below-par valuations. She should instead focus on profit strategy, the core of which was in operational efficiencies, aiming for a stronger financial position that could allow her to be self-sufficient in the days to come.
Specific Problem: How to Survive in the Highly Competitive Cloud Kitchen Space?
Competition in the Cloud Kitchen Space in India
There was fierce competition in India’s cloud space, with three to four key pure players: Faasos aka Rebel Food Private Limited, Poncho Hospitality Limited or Box8, Innerchef Private Limited and FoodVista Private Limited or FreshMenu. Others included food aggregators, food delivery companies, or cab companies that forayed into cloud kitchens to grow their portfolio of services and own the industry’s value chain. These major competitors are described in the following subsections.
Industry Leaders
Faasos Food Services Private Ltd., commonly known as Faasos, started as a quick-service restaurant company incorporated in 2011. The company rebranded itself as Rebel Foods Private Ltd. In 2018, Jaydeep Barman and Kallol Banerjee founded Rebel Foods. Rebel Foods Private Limited, a multi-brand cloud kitchen company, ran 200+ kitchens across 15 cities in India. It processed around 30,000+ orders per day (Loizos, 2019).
Poncho Hospitality Limited, selling under the brand name Box8, was a cloud kitchen company founded by two Indian Institute of Technology graduates, Anshul Gupta and Amit Raj, in 2015. The venture was founded primarily to serve irresistible local everyday cuisines in convenient and easy-to-carry boxes to the masses. The company had served over 22,000+ orders every day across its 100+ kitchens in four cities across India. Box8, a full stack, multi-brand company, offered a wide range of hand-picked, chef-crafted menus in multiple categories with attractive packaging (Economic Times, Rise, 2015; Krishnamurthy, 2015).
In deals, in the latter part of 2019, Box8 raised $15 million in a series C round led by the eWTP ecosystem and existing investors such as Mayfield and IIFL Seed Ventures Limited (Pitchiah, 2019).
InnerChef was founded in 2015 by Rajesh Sawhney, Sanjeev Singhal and Bal Dighent. The Gurugram-headquartered company started with a box of raw ingredients from which a consumer could make a dish. However, the founders later realized that ‘India is not ready for the box model’. The company pivoted to delivering food from cloud kitchens. It had about 25 kitchens operating as a hub-and-spoke model across six Indian cities. The company built a portfolio of multiple brands especially catering to local Indian cuisines (Kashyaap, 2016).
In the funding round held in the latter part of 2019, it raised $6.5 million in Pre-series B round funds from multiple investors, primarily for its expansion across India (Pitchiah, 2019).
In 2 years, the cloud kitchen business became the new growth avenue for India’s heavyweight food-ordering and delivery companies. A few food-tech companies increased their service portfolio by opening cloud kitchens. Other than the pure-play cloud kitchen brands such as Rebel Foods Private Limited, Innerchef and Box8, the laggards in the cloud kitchen space are described in the following subsections.
Industry Laggards
Swiggy, the Bengaluru-based food delivery company, started a cloud kitchen programme, ‘Swiggy Access’, in November 2017. The company’s survival strategy in the cloud kitchen space was to offer partner restaurants a supply-only kitchen facility to enable faster delivery. It had approximately 35+ cloud kitchens spread across four cities in India.
Zomato, the Gurugram-based restaurant discovery, and food delivery platform pursued a different business model. In June 2018, it invested in a third-party cloud kitchen company called Loyal Hospitality, which provided ready-to-occupy kitchens to restaurants. Zomato had already invested about $15 million in tranches in the Bengaluru-based Loyal Hospitality to expand its cloud kitchen operations in Bengaluru (Srinivasan, 2018).
Ola, the Bengaluru-based ride-hailing unicorn that competed with Uber, was driving its cloud kitchens strategy through Foodpanda, which it acquired late in 2017. Ola launched its cloud kitchen services, starting with the ‘Khichdi experiment’ in Bengaluru. The Khichdi experiment served carefully curated varieties of Khichdi in as many as 16 unique flavours. The Khichdi experiment was available for delivery in five cities: Bengaluru, Hyderabad, Mumbai, Pune and Chennai. The bigger idea was to serve a more curated cuisine in the coming days. Ola had a network of 50 cloud kitchens in significant Indian cities. The company was looking to expand to more than 80 cities in India over the next year (Khatri, 2019).
The most recent entrant to the cloud kitchen segment was the budget hospitality chain OYO rooms. The Gurugram-based company forayed into the online food business by launching a couple of private labels on existing food delivery platforms (Bansal & Salman, 2019).
India’s largest retailer, Future Group, also planned to enter the cloud kitchen market, focusing primarily on serving rice meals at less than $1.
Alternatives
Growth or Profitability: What to Choose?
FreshMenu had so far survived fierce competition and marketing wars. It even grew at the industry growth rate. To its advantage, the cloud kitchen business had become a new growth avenue for India’s heavyweight food ordering sector. Therefore, FreshMenu’s macro environment enabled it to maintain its growth rate. The immediate concern for FreshMenu was ensuring its cloud kitchen operations remained profitable.
In contrast to profitability, growth had always been considered a favourite factor for investors, who often perceived a business as being proactive if it was growing. However, for Rashmi, the mindless pursuit of growth would have been a costly affair because she would have either diluted her equity at a lower valuation or resorted to debt funding and serviced it. On the contrary, FreshMenu was on its way to profitability. FreshMenu had already cut costs and strengthened its financial position (Mackay & Valikangas, 2004).
Conclusion
The Road Ahead
In August 2019, Rebel Foods Private Limited raised $125 million in a Series D round from Coatue Management, Goldman Sachs, Indonesia’s GoJeck and other investors (Sangwan, 2019).
The debt-funding round and earlier equity-funding rounds had added more to its coffers. Speculations were rife that Rebel Foods was also vying for unicorn status with a valuation currently at $525 million (Mitra, 2020).
Rebel Foods was expanding, increasing its presence in Southeast Asia and the Middle East. Meanwhile, FreshMenu could not raise funds until August 2019, when a bridge round helped it raise $500,000 from an independent corporate trustee and corporate service provider, Vistra ITCL. After this funding, FreshMenu’s valuation stood between $47 million and $50 million, which was still too little compared with Rebel Foods Private Limited (Team TC, 2019).
Rashmi Daga found herself between two competing objectives that had existed since immemorial growth versus profitability and a short-term versus long-term goal. In an entrepreneurial ecosystem where growth was typically celebrated with greater investor participation and better valuation post-funding than profitability, profitability was often disastrously looked down upon. She went back to a piece of news stating that the lack of scalability had led to the sparse and hugely intermittent funding FreshMenu had received thus far, resulting in a catastrophic company valuation. Therefore, growth would be a necessary evil for FreshMenu eventually. Rashmi had focused on being profitable first because she wanted to focus on building a robust business model. She would consider growth later. She believed that achieving trading growth without profitability would not help her progress and would be self-defeating in the long term. She was building the foundation of her business, whether it was her cuisine, audience or logistics. Switching her focus to growth would require Rashmi to overhaul the leadership, organizational culture or overall strategy of FreshMenu. Rashmi knew that FreshMenu was not prepared for such an overhaul. However, the cacophony about growth and funding left her disturbed. With a previous failed venture, she felt that history could repeat with FreshMenu.
Nevertheless, FreshMenu had broken even and would soon be on its way to profitability, an objective Rashmi Daga felt could be achieved in 2020–2021. She had decided to put her geographical expansion plans on hold until she received more funding from investors (Pahwa, 2019).
Rashmi Daga seemed unsettled by her conservative approach and questioned if she was making the right move. In her entrepreneurship classes at IIM-Ahmedabad, she was taught to focus on growth rather than profitability, the short term rather than the long term.
She went back to the famous fable about the Hare and the Tortoise. She had long believed in the slowness and steadiness of the tortoise. Nevertheless, the times had changed, and so had the fable and the moral of the fable. She felt like an exception in the entrepreneurial ecosystem. It was good to be tortoise: the typical conventional founder who focused on winning the race on the strengths of slowness and steadiness of FreshMenu. What bothered her the most was the pace at which the competitors, the hares, were competing in the race. She contemplated whether the tortoise was still relevant, the story would take a new turn with the hares winning the race, or the race was irrelevant when she was clear about what she wanted to do with FreshMenu.
She wondered if she was making a worthwhile case or not. The key to her answer was in the financial statements of FreshMenu and its competitors. How do the key metrics of her company’s financial statements compared with those of her competitors (refer to Table 1)? How could she use her core strengths and competencies to find a firm footing despite the unconventional approach?
Financial Statements of FoodVista Private Limited Versus Its Competitors.
Footnotes
Declaration of Conflicting Interests
The authors declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.
Funding
The authors received no financial support for the research, authorship and/or publication of this article.