The Scam 2013-2018. The uncanny story of the on demand food delivery start up foodpanda and why it failed.
If you are enjoying watching Scam 1992 on Sony Liv, then you’re going to love reading this.
I’ll start with a story. More precisely, the story of my once-in-a-lifetime experience with Foodpanda.
The year was 2017 and my brother was having a late-night house party in Bangalore. Naturally, we had to order a huge quantity of food for the guests. But it really was very late and most of the restaurants in our area were closed. However, Foodpanda was the only ray of light in this time of darkness because they had listed around 10-12 restaurants that were still open.
So we ordered and waited. And waited. And waited (Fortunately for Foodpanda, both my brother and I were too awkward to call and scream at the restaurant). After nearly 2 hours of starvation, the delivery boy called us and we rejoiced. My brother went downstairs to get the delivery.
10 excruciating minutes later, he miraculously turned up with absolutely zero food items in his possession. Why?
“The delivery boy said he’d forgotten to pick up our order,” my brother informed me.
Forgotten. Yes.
It was such a bizarre occurrence that I naturally assigned the entirety of the blame to the remarkably forgetful delivery boy and moved on with my life (Later that night we invented the trend of late-night Maggi parties).
However, something bizarre happened when I started researching for this article. This memory that I had pushed to the very back of my mind made a sudden comeback. Why? Because I kept reading about cases where Foodpanda kept taking orders from closed restaurants. This is what made me reanalyze the incident I had witnessed in Bangalore. The forgetful delivery boy wasn’t a one-off occurrence.
When a startup such as Foodpanda fails, people often start wondering- What were they doing wrong?
Did they not do proper market research? Was there a problem with their business model? Did they spend too much money on advertising?
With Foodpanda, it was all of the above and more.
So when you ask why foodpanda failed, there are several reason that I can list.
I don’t want to go around throwing allegations because the company went out of business before any of these allegations could be proven. But man, there truly are a LOT of allegations.
Pointless mud-slinging is not my intention here. However, if you just scratch the surface of Foodpanda’s activities for the past decade you’ll notice a peculiar pattern.
There’s such deep rooted inefficiency at the core of Foodpanda India, you have to wonder:
Was everyone involved in this business venture superbly incompetent? Or, and this is the more likely option, was the whole thing a scam?
Fake orders are one thing. With Foodpanda, you’re going to come across the bizarre phenomena of fake restaurants and fake call center employees.
Before we begin, however, you must remember that Foodpanda is an international brand. It operates in over 50 countries. The funding of Foodpanda India came from the Berlin headquarters itself. In Bangladesh, Foodpanda, under Ambareen Reza, has been an immense success. My intention behind saying all this is to point out that Foodpanda in general is not a failure. Just take a look at this revenue chart:
As you can clearly see, there has been an enormous growth in Foodpanda’s revenue worldwide between 2013 to 2016. 0.7 million to 50.6 million in such a short span of time is no mean feat.
It specifically failed in India. Why?
Keep reading.
The post-2010s saw a huge boom in food-based startups in India. Zomato and Swiggy, the current leaders of this movement, started in 2008 and 2014 respectively. Foodpanda, like its many contemporaries, entered the Indian food scene in 2012.
The business model of Foodpanda was the same as that of the others that I just mentioned. They promised to make the process of ordering food more convenient by maintaining a directory of the restaurants. Customers could browse through multiple menus and avail discounts. This would be beneficial for the restaurants too because getting a listing would increase their visibility and would also make the process of delivering food much simpler. The majority of Foodpanda’s revenue was supposed to stem from restaurant commissions.
However, this is what should have happened. Not what actually transpired.
This is exactly why Foodpanda failed in India:
Fake Orders, Fake Restaurants.
One of the major faux pas of Foodpanda was that they required almost no verification when it came to getting restaurant listings.
According to this restaurant owner from Noida, all you needed to do to get a Foodpanda listing was give them Rs. 3000. They did not visit a restaurant to check whether it really existed.
Moreover, they didn’t even delist the restaurants that had pulled away from Foodpanda or closed down.
Some customers obviously started taking advantage of these false listings. All you needed to do was order from a restaurant you knew had shut down. Foodpanda employees would call you up and apologize for the “technical difficulty” and offer you a voucher for the same amount of money that you spent. So, you could basically get as much free food as you wanted till Foodpanda caught on.
And it really did take them a long, long time to catch on.
But these are still minor losses. Foodpanda lost millions to fake restaurants.
Let’s first understand how the fake restaurant scam worked.
You have a fake restaurant listed under Foodpanda. You wait for one of Foodpanda’s very generous offers (believe me, there were a lot of these going around). Let’s say you stumble across some Buy One Get One free coupons.
Now, you place an order of Rs. 200 as a customer. How much is Foodpanda supposed to add to that? Rs. 200. The order goes through. You, also the restaurant owner, get paid Rs. 400 from Foodpanda. Did you have to deliver any food? Obviously not. You are the owner of a fake restaurant and you are also a fake customer.
By playing this dual role, you could double your money. And we’re not just talking about one order. Thousands of such orders was placed like this.
“Now, wait a minute!” you interrupt, “This is too good to be true. Even the simplest of a conman’s tricks require more complexity to succeed.”
You’re right. Neal Caffrey and Tracy Whitney have to work a lot harder to make their tricks work. Then why is following Foodpanda so simple?
This is the exact question that made me ask those initial questions: Is this just gross incompetence or is this a scam?
Why did Foodpanda not put in the minimum amount of effort to verify the authenticity of the restaurant? How could several restaurants listed with the same address not get flagged? Why didnt they not update their delistings? How could they be so blind to fake orders placed in bulk amounts?
A million such questions can be asked.
And you can rest assured that Foodpanda would be able to answer absolutely none of those questions.
According to ex-employees, apparently, all the data was stored away on open excel sheets. Think about that for a while. The data of a million-dollar startup was stored away on excel sheets that multiple people could modify.
This is what led me to this very pertinent speculation: The bosses simply didn’t care enough.
Now, this is where we start asking the real questions. How could the bosses not care when they were losing such a lot of money? Was this oversight intentional?
Want to know the scale of loss Foodpanda suffered because of this?
A man named Sunny Goel (probably a pseudonym) managed to get 70 fake restaurants listed on Foodpanda. These restaurants were spread across Meerut, Noida, and Gurgaon. He practiced the Coupon Con I described extensively without getting caught even once.
Even when Foodpanda realised what was going on, they had no way of apprehending him. His identity was fake and the man had multiple phone numbers. How could he get away so easily?
Because the verification process of Foodpanda was laughably inefficient as I mentioned before. Why did they not make site visits as any other organisation does?
Oh, because they were in a hurry to acquire more and more restaurants in a short period of time, of course. What this shoddy verification process resulted in is that more than 400 fake restaurants popped up within 2015.
Foodpanda did try bringing the situation under control but to no avail. The fundamental security checks that they had laid in place were so ineffectual that it would take years to figure out which of the listed restaurants were genuine.
In their effort to stop fraud, they had to do away with takeaway-only places which caused even more loss.
Just try to imagine how disastrous this lockdown would have proved for the takeaway-only places listed under Foodpanda!
Fake Employees
After ghost restaurants, we come to the topic of ghost employees.
If you remember the downwards spiral of Foodpanda, you’ll remember this offer:
And then this one:
This was Foodpanda’s last desperate bid to survive.
Unfortunately, even this was not enough to save it.
Foodpanda essentially transformed itself into the Oprah of food coupons before it’s imminent death.
This did make people order food more but since they were giving food away at insanely low rates it’s doubtful if they made any profit.
Irrespective of that, the increase in the number of orders meant that Foodpanda had to employ more customer care employees.
They did just that in 2015 when they teamed up with Capricorn eServe. Capricorn was a small call centre firm based in Gurgaon. Around 200 employees worked for Foodpanda and were paid handsome salaries for it as well (around Rs. 30,000 per month).
Nothing fishy here, right?
Wrong. Everything’s fishy about Foodpanda.
When did Capricorn come into existence? 30th July, 2015.
When did it sign its memorandum of association with Foodpanda? 21st July, 2015.
Moreover, ex-employees of Foodpanda who had visited the site claimed that they had never seen more than 60-70 employees at the call centre.
So, what exactly was going on here?
How could a company supply employees before coming into existence? How could Foodpanda keep paying 200 employees for months when less than half that number truly existed?
Again, it’s not up to me to make allegations. But when questioned about it, why wouldn’t the Foodpanda authorities simply deny the claim and provide proof of its falseness?
Why give this the air of a cloak-and-dagger operation?
And most importantly, who was siphoning off the extra money? Capricorn? Maybe. But Rohit Chaddha, the former co-founder and managing director of Foodpanda India, had called Capricorn a “superb business partner.”
Could Capricorn really sneak away with that much money from right under the noses of its Foodpanda bosses? Or was there an insider who opened the door to these fraudulent activities?
Keep reading and hopefully, you’ll be able to make up your mind about it soon enough.
The Curious Case of the Overpriced Tablets
As you might already know, in 2015 Zomato came up with the idea of supplying their listed restaurants with iPads. Whenever a customer placed an order on the app, the same order would pop up on the iPad screen in the restaurant.
It was a neat trick and Foodpanda jumped at the opportunity to follow in Zomato’s footsteps.
But instead of iPads, they decided to go for something cheaper- Samsung tablets. It was a good decision and a man named Abhishek Mandal was assigned the task of acquiring the tablets. Mandal did a pretty good job and managed to arrange for tablets worth Rs. 10, 000 each.
Which is the precise moment when he was abruptly removed from this operation. Another man named Shray Gulati replaced Mandal. Absolutely no one, besides the founders perhaps, knew why this replacement had taken place when Mandal had done his job perfectly.
However, unlike Mandal (who was the head of operations at Just East India, a startup that Foodpanda had bought), Gulati was an insider. He was the Vice-President of Operations at Foodpanda itself. And he somehow managed to double Mandal’s per piece cost.
Rs. 20,000. That’s how much Foodpanda spent on each Samsung tablet even though Mandal had managed to bring down the price to half. They actually bought a huge bulk amount at a bizarrely high mark-up.
Why? Well, only the bosses could tell. After all, it had been their decision to replace Mandal with Gulati.
And trouble did not end here. In fact, it had just started.
Foodpanda claimed to have 12,000 restaurants on its list, which is why it had gone for the cheaper Samsung tablets in the first place.
How many of its restaurants actually generated revenue? 2000. Think about the sheer difference.
And, the Foodpanda authorities had very clearly known about this discrepancy in the restaurant listings because they ordered only 2000 tablets. (Not that they managed to acquire all 2000 tablets.)
So, did the distribution process at least go smoothly?
Obviously not. We’re talking about Foodpanda here. Only 500 out of the 2000 tablets were distributed to restaurants across Delhi, Pune, and Bangalore.
Tired of this trainwreck? I’m not yet done.
The cherry on top of this already disastrous cake was that: these extremely overpriced tablets did not even follow the specifications that had initially been listed.
So, why on Earth did Foodpanda replace Mandal with Gulati when the latter did everything wrong?
Did they actually want this fiasco to happen?
Piggyback Startups
You’re possibly wondering who the captain of this shipwreck was. After all, a lot of questions and speculations do revolve around the bosses of Foodpanda.
The one name you should keep in mind is- Rohit Chadda. Yes, the same guy who said that the company with fake employees was a superb business partner.
Rohit Chadda had also owned a media startup called Crazy Boyz Entertainment Pvt. Ltd along with his brother, Mohit Chadda (who was also an actor) and a man called Suraj Suresh Joshi.
What was the one project that Crazy Boyz Entertainment was actually known for? The Foodpanda ads that it created. It also made ads for a startup called Printvenue (a business that manufactured custom printed accessories), which Chadda was, coincidentally, also connected to.
But that’s fine, right? There’s nothing wrong with keeping it in the family.
Well, not if there’s a discrepancy of 2.25 crores.
One of the arenas where the Foodpanda budget was grossly overspent was advertising. They spent a whopping amount of 3 crores on this venture.
How much did Chadda claim that they had spent? 75 lakhs.
Since Crazy Boyz Entertainment didn’t file a single profit-and-loss balance sheet in its 3 years of existence, the truth behind this massive overspending cannot be ascertained. Tellingly enough, this did not stop Chadda from looking at this company as a valuable ally either.
But money was not the only thing that Foodpanda kept losing.
In 2014, Chadda opened a restaurant table reservation company called Ziner. This would also have been completely fine had some of the Foodpanda employees not realized that the data that Ziner was using was jarringly similar to theirs.
In other words, there was a justified fear of data theft. But could it really be called a “theft” if the owner was the one who was responsible for it?
Later, Chadda added fuel to the fire of suspicions that had already existed by claiming that he had never owned any such company as Ziner.
What Chadda’s intentions were I cannot say for certain. But the circumstantial evidence that we see before us does make one thing certain.
He was using the resources of Foodpanda for his other projects. Basically, Crazy Boys Entertainment and Ziner were both piggybacking on their more handsomely funded big brother- Foodpanda.
This piggybacking would not have been an issue if these companies were not also acting as parasites, sucking away the resources of Foodpanda.
The Chaos in the Boardroom
Foodpanda had acquired a lot of companies like Just Eat India (the one Abhishek Mandal was associated with). One such startup was TastyKhana, the founder of which was Shachin Bharadwaj.
Even if everyone else was ready to go along with Chadda’s incomprehensibly inefficient decisions, Bharadwaj was not one of them. He put his foot down when he demanded an independent audit. After all, he was losing money as well.
However, none of the other bosses agreed with his demand. It wasn’t just Chadda who was opposed to the audit, so was Heavent Malhotra, the managing director of Rocket Internet in India. (Rocket Internet, a business conglomerate with its headquarters in Berlin, was one of the prime investors of Foodpanda. Rocket Internet has its own story of failure in India. They were the ones who sold Jabong to Flipkart in 2016 at a huge discount.)
Malhotra and Chadda presented themselves as a united front and steered the discussion clear away from the demand for an independent audit. Legitimate concerns of fake orders, fake restaurants, and overall mismanagement were brushed aside completely and given the facade of a personal gripe.
As a result, absolutely nothing was sorted, nothing resolved. Bharadwaj silently left the company a while later and refused to comment on the tiff between the other two men and himself.
One cannot help but wonder- why were Malhotra and Chadda so determined not to have an independent audit if there was nothing to hide? ‘
The answer seems as clear as day.
In Conclusion
Even if we take none of the above factors into account- Foodpanda would have always sunk due to gross mismanagement.
When customers could not contact Foodpanda, they contacted the restaurants. This obviously annoyed the restaurants to a great extent since they could not address the problems the customers were facing with Foodpanda. Restaurants, after all, could not explain why Foodpanda coupons were not working. Restaurants were often not informed about canceled orders either. The whole technology backing the app was flawed.
Ola acquired Foodpanda in 2017 and had some big plans for it, including the setting up of cloud kitchens. Unfortunately, Foodpanda was too broken to be fixed. Ola did stick to its idea of cloud kitchens but dropped Foodpanda in 2019.
Instead of asking “What went wrong with Foodpanda?” the question should probably be “What DIDN’T go wrong with Foodpanda?”
But if you, as the owner of a budding startup, are worried about making the same mistakes as Foodpanda, you probably shouldn’t worry too much.
The rot in Foodpanda didn’t set in at the bottom, it started at the top. The underlings just took advantage of the withering tree.
