Why Swiggy's investment in Rapido is a masterstroke

Swiggy's renewed focus on the 'neighbourhood convenience economy' or hyperlocal market gets a vital shot in the arm with its strategic investment in Bengaluru-based bike taxi start-up Rapido. The food delivery giant has contributed about $125 million in the latest funding round, which has valued the start-up at over $800 million, according to sources privy to the development.

The Sriharsha Majety-led company, despite strong growth during lockdowns, has shifted its attention to hyperlocal in search of positive gross margins and Rapido, with its 1.5 million driver-partners and over 25 million customers, is a perfect match for the company's core business thesis.

Rapido said Swiggy's participation in the latest round will build on the synergies between the two companies. "With a common mission to deliver superior customer experience through higher fleet availability, it will also provide additional earnings for both Swiggy's delivery executives and Rapido's captains," it said in a press statement.

It added that it will invest the $180 million Series D round to bolster its technology, amplify its teams across capabilities, and increase overall supply to enhance consumer experience across the 100+ cities it operates in. Funds will go into all its three categories - - bike-taxi, auto and delivery, to enhance its captain earnings and improve customer experience.

Much like Swiggy, Rapido is also a true hyperlocal company which places last-mile connectivity at the nucleus of its operations. It primarily operates a two-wheeler and three-wheeler ride-sharing service besides an intracity pick and drop vertical.

The partnership helps Swiggy address one of the biggest headaches of delivery platforms: sub-optimal usage of riders.

Food delivery, its primary business vertical today, is always a two-peak business-lunch peak and dinner peak. The low utilisation of riders in the mornings and evenings tear a massive hole through unit-level profitability. As part of its 'everything delivery' strategy, Swiggy is building a number of new verticals in the neighbourhood convenience market and Rapido's fleet network, spread across the country, will be a massive asset to this approach.

Instamart, the express grocery delivery service, is driving this new focus. Now available across 23 cities, Instamart accounted for about 20 per cent of Swiggy's revenues of Rs 2,547 crore in FY21. Industry sources put that share at about 25 per cent today. The company is also gradually building out its pick-up and drop (courier) service, Swiggy Genie; subscription-based daily grocery delivery service, Supr Daily; and a meat delivery vertical called Meat Stores.

Today, the Prosus-backed company delivers food across 520 cities, does local courier service in 68 cities with Genie, and offers daily essentials in six. As it adds more and more verticals to this hyperlocal play, it requires constant additions to its delivery fleet and in Rapido, Swiggy earns a well-developed, ready-to-go fleet. While Genie offers direct synergies with Rapido's local pick and drop service, the growing hyperlocal verticals at Swiggy offers Rapido's Captains (driver-partners) more avenues to improve their earnings. A close collaboration and integration offer both the companies enough use cases for effective utilisation of its delivery fleet.

"Swiggy and Rapido share a vision to build a logistics platform that empowers riders through more opportunities and higher earnings. While we've already been working together, this investment facilitates closer alignment to leverage the synergies between the platforms and improve the value we provide to both consumers and delivery executives/captains across the country," Majety said.

The 'everything delivery' model helps Swiggy reduce discounts across its platform, and allows it to plug all its riders into a single unit, which enables better utilisation of its delivery fleet. As deliveries become fast and spread across the day, riders can fulfil more orders per hour, which allows it to reduce the incentives paid per delivery without affecting a rider's earnings.

Effective integration of taxi services on the app can bring in another highly frequent use case for Swiggy rider partners while helping the company add yet another strong category to its platform play, which can dramatically increase the open rate for the application. Across taxi services for last-mile connectivity, food, grocery and local courier services, customers will have multiple reasons to open Swiggy application and this solves for the unit economics and rider optimisation, to an extent.

Also read: Rapido raises $180 mn in latest round from Swiggy, TVS Motor