On Dec 19 2017, Ola Cabs announced its takeover of Foodpanda’s operations in India. The local delivery firm announced that it no longer wishes to remain just in the taxi businesses and expressed interest in re-entering the food delivery industry. Ola’s attempts at entering the food industry in 2016 had not reaped positive results and Ola café, the first attempt of Ola, was shut down in less than a year. However, recently, the businesses has reinitiated its interest in the industry and thus, this acquisition of Foodpanda India.
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Scope for research
This acquisition had cost the business an initial purchasing fee of $50 million combined with Ola’s promises to invest $200 million in the growth of the business. Common perception associates Ola’s take over decision to be motivated by its intention to take on business rival, UberEats. However, whether the acquisition will yield market growth and dominance for Ola remains a question. Similarly, the investment in the competitive food industry amidst powerful business giants has been questioned frequently. A re-entry into this industry may be better with past learning or ill advised, considering the past failure. It is to be identified if this diversification on Ola’s part would reap positive synergies, strong enough to boost the competitiveness of the business.
Significance of topic
In essence, this extended essay will explore and analyse the effectiveness and of Ola’s decision to acquire Foodpanda through both primary and secondary research. Thus, my research question: “To what extent is Ola’s acquisition of Foodpanda India an effective growth strategy for Ola?” Ola’s acquisition of Foodpanda possesses various phases of analysis that contribute towards determining the effectiveness of the decision. In this essay, I have used a homogeneous combination of primary and secondary research to analyse this acquisition. The historical performance of Ola and Foodpanda India in the food delivery industry, Ola’s experiences in diversification and the potential promotional and market synergies that the business might hope to exploit are some aspects of significance that I will be assessing in my essay. In addition, this topic, in specific, addresses the element of heavy market saturation and competition, which will hence, be a major component of my extended essay.
Following is the comparative SWOT analyses of Foodpanda and Ola:
- SWOT ANALYSIS (Foodpanda India)
- SWOT ANALYSIS (Ola Cabs)
- Quick delivery
- Trained workforce
- International understanding of the business
- Better customer support
- Wide range of supplying restaurants
- Limited coverage from a consumer point of view
- Minimum quantity for free delivery service
- Present only in a few cities
- First mover advantage
- Product line
- Strong Brand name Low investment
- Dynamic pricing
- Poor control over drivers
- Weak support services
- Dependence on Internet service
- Tech savvy target market segment
- Growing market with chance of potential consumers
- Dependent consumers on the service
- Frequent usage of the service could lead to more sales
- Increasing competition
- High market saturation with threat of new entrants
- Small existing customer base
- Wide market
- Increasing potential market
- Poor government transport
- High market saturation
- Heavy competition
- Government regulations
- Customer orientation
Using these SWOT analyses, I will be addressing the aspect of potential synergies and possible conflict in interests as the first component of this analysis. When a synergy occurs, the integrating firms have access to each other’s resources and expertise. This could boost productivity. Both Foodpanda and Ola, even individually, experience high labour intensiveness and are dependent on the drivers to successfully meet the needs and wants of the customers. The businesses’ reliance on their employees is such that the satisfaction and potential for loyalty of the customer is dependent on the quality of service of the driver.
The SWOT analysis indicates that while Foodpanda benefits from its strong workforce, the drivers of Ola are difficult to control. The management style for the drivers at Foodpanda can be adopted and implemented to benefit Ola as well. Ola’s homegrown nature corresponds to strong market awareness of the Indian audience, more than that of the US based company Foodpanda. This local awareness could mean that the existing small customer base could be expanded to benefit the businesses mutually. Similarly, Foodpanda’s international awareness might propose globalization as a potential growth measure for Ola.
The product line of Ola is quite large including numerous products such as Ola pedal, Ola auto and Ola cabs. The business benefits from this attribute. Although this acquisition is an established diversification, it is possible that the business could further widen its product line by entering into this industry. This will strengthen the existing strength of the business. Ola being a ride hailing company, has maximum coverage and wide capacity in terms of geographical factors. The SWOT establishes poor coverage to be one of the weaknesses of Foodpanda. The widened vehicle capacity means a greater capability to access further geographical limits for the business. The existent customer base might become stronger owing to the widening variety and a new potential customer base can be anticipated. This is, therefore, a potential synergy.
Foodpanda’s presence in India is minimal and restricted to 12 cities in the sub-continent . In contrast, the home grown first mover has spread to a total of 110 cities from its founding in 2010. The synergy here is evident as Foodpanda can benefit by expanding to a wider range of audience in a greater variety of cities in India. The presence of Ola in multiple cities pairs with the first mover trait of the business and hence similizes a market awareness for Ola. This could hence be exploited if Foodpanda chooses to penetrate these markets.
Simultaneously, when the drivers are being used mutually, it is possible that the misconduct could yield unsatisfactory customer satisfaction in an industry solely dependent on customer service and satisfaction. For this service oriented business, “customer is always right”. Therefore, this could propose an area of conflict. Although the merging of management styles could yield better conduct in the drivers, the resistance to change in the drivers could result in conflicting interests and bad working relationships. The acquisition could lead to redundancies for the management staff and insecurity in existing staff.
In essence, combining resources would result in boosted profitability and sales due a better reach and wider target market. However, combination of expertise may lead to potential conflicts because of a contrast in working style. The benefit of synergies can be exploited to produce stronger market dominance but the business would have to combat the culture clash and conjure mutually beneficial human resource planning, especially considering the high levels of labour intensiveness in both companies. In combination with the synergy effect is the impact of promotional strategies pairing the businesses jointly. To address this segment, I will be utilizing the below image combined with a portion of the primary research I conducted as a survey.
Joint promotion would mean that the sales of both businesses would be boosted from customer loyalty of the other. Existing customers of both businesses could choose to use the other business due to the promotional benefit the choice. Market analysis of the Indian audience would suggest a particular effectiveness of promotional deals in the market. Not only will Foodpanda experience a boost in sales, but the potential customer base could expand for Ola. From a second perspective, regular customers of Ola could find the offer especially enticing owing to their regular utilization of the service. This could stimulate new customers for Foodpanda.
The above images are the chart representations of two of the questions of my primary research survey. In the first survey, the orange area which corresponds to 73% of the responses indicates a neutral likelihood from the Indian consumer market towards changing to Foodpanda due to the acquisition. The weak brand image of Foodpanda is one of the highlighted components of the SWOT analysis. The second pie chart, with an orange area quantified as 78.6% represents an unchanged perception of the acquisition form the consumers. In both charts, the rest of the minority also corresponds to green and purple areas respectively which suggest a partial negative bias towards the acquisition. From this I can infer that the business may not be able to rely on the strength of Ola’s brand image to promote the weak customer base of Foodpanda.
In addition to that, this indifferent attitude may correlate to an unsatisfactory result for promotional campaigns. This may cause an unnecessary cash outflow, especially considering the fact that the business is offering monetary benefits in the form of coupons. This allows me to conclude that the theoretical conclusions that can be drawn from the promotional strategy of the acquisition may not necessarily equate to identical results for the businesses.
The next element of my extended essay will explore the effectiveness of Ola’s acquisition, from the perspective of Ola’s previous attempt at entering the food delivery industry, Ola café. Ola’s prior attempt, Ola café which was opened in 2015 was shut down within a year in 2016. This was the business’ first attempt at food delivery and did not yield positive results. The question of whether this experience should have been considered by Ola, as a learning or warning will shed light on their business decision to acquire Foodpanda India. In addressing this component, I will be solely utilizing historical data.
Ola café’s operation was based on the taxi drivers themselves, collecting the ordered food and delivering it to the customer . The customer was able to choose from zonal available options that the location proposes. In view of geographical limitations, Foodpanda India is identical as it allows only a concentrated range of suppliers, within the vicinity of the customer’s location. However, as the SWOT analysis indicates, the business has connection with a larger number of suppliers. In this context, I would like to revisit the labour intensiveness of the industries. Ola’s incapability to run Ola café may have been a consequence of insufficiency of labour. However, looking at the new acquisition, Foodpanda’s specific, familiar and skilled labour would not face this hurdle in carrying out business.
The unsuccessful attempt at Ola café is an indicator of Ola’s lack of market awareness in the area of food delivery. This could be combatted by Foodpanda’s expertise in the field. However, the synergy effect may not be exploited to full potential due to Foodpanda India’s local unawareness. Moreover, the rapid shut down of the business idea is suggestive of hasty decision making and poor management. This might be an attribute of the new acquisition as well considering the likened industries of the operations. However Foodpanda’s independent operations and management may subdue the consequence of this aspect.
Furthermore, the business’ past failure in the industry may have biased the existing customer base of Ola into having a negative product perception of Ola in the food delivery industry. This could mean, that they may be hesitant to use the service, which is being provided once again, by Ola. By contrast, the business may have considered the venture as a more focused attempt at re-entering the industry and it is likely that their decision this time is better advised.
Thus, the past record of Ola, in entering the food industry can be simultaneously considered a learning and a warning. In this situation, it could be inferred, that Ola’s decision to acquire Foodpanda India could be considered well advised if the business conducts critical analysis of its past experience with Ola café and manifests the vital elements of the scrutiny into the new venture. This would make the deal a more fruitful experience for Ola and Foodpanda India.