As founding stories go, Swiggy’s is fascinating and one that is emblematic of the start-up journey in India’s Silicon Valley, Bengaluru. Swiggy was born "over two good beers” with Co-founder Nandan Reddy at Arbor Brewing, a craft brewery in Bengaluru, says Sriharsha Majety, Co-founder and CEO of the firm.
What does it mean? With a wide grin, he says the logic was simple: it had to be short and catchy. “We were throwing darts with names and came up with Swiggy. I think it’s a fun name and has worked.”
That was over a decade ago, and since then the firm, which has food delivery and quick commerce segments, has raised a lot of money and explored new business opportunities. And it went public last November. At an offer price of Rs 390, it was listed at Rs 412 and dipped below its offer price to close at Rs 362 on February 10.
But it is locked in an intense fight with Zomato for market share in the food delivery space, and now it is embroiled in a battle in the intensely competitive quick commerce space with Zomato, Zepto, and a clutch of new entrants looking to get a slice of the pie.
There is little doubt that investors are interested in technology-first new-age sectors, but the chorus for profitability has increased. It is no different for Swiggy.
In Swiggy’s core business of food delivery, while revenue surged from Rs 3,414 crore in FY22 to Rs 5,192 crore in FY24, it was still in the red, though losses fell drastically from Rs 1,378 crore in FY22 to just over Rs 9 crore in FY24. Overall, revenue nearly doubled from Rs 5,728 crore in FY22 to Rs 11,279 crore in FY24. Meanwhile, losses decreased from Rs 3,138 crore to Rs 1,612 crore in FY24.
Building Out
All conversations with Swiggy’s top brass revolve around India, its demographics, and how that can be utilised to build a compelling and profitable business. Consequently, each of its businesses-food delivery and quick commerce being the most prominent-look at the new India as the perfect landscape to build on.
Enter Swiggy’s office in Bengaluru and you can see some of that vibrancy. It is a large building buzzing with young employees dressed casually in jeans, with a smattering of some retro scooters here and there. “The landscape is dynamic, and one’s instinct is important. We like the idea of building on our strengths and passionately exploring ideas,” says Majety.
Rahul Bothra, Swiggy’s Chief Financial Officer, says consumers are at the heart of everything, “and it is a question of making choices from adjacencies.” Unlike its peers, Swiggy has, to a large extent, preferred the organic route to grow.
Of course, there have been buyouts-six in all, with Dineout and Lynk Logistics being the relatively recent ones—and there is proof that “investors have got more bang for the buck inorganically,” says Bothra. Describing the uniqueness of his business, Bothra says each segment has “large total addressable market opportunities” and a constant funnel of new customers.
Some marquee investors-like Prosus, Accel, Elevation Capital, Norwest Venture, Tencent, among others—have cut big cheques because of that line of thinking and the ability to execute.
Fabricio Bloisi, CEO of Prosus, the Dutch-listed arm of South African firm Naspers, thinks the company has always been an innovation engine in food delivery. Prosus holds a 25% stake in Swiggy. Bloisi is visibly excited about Swiggy’s foray into quick commerce through Instamart. “It has been a pioneer in quick commerce, seizing the opportunity that comes from a large user base to expand beyond its core business. Swiggy’s agility comes from its willingness to experiment, bring ideas to the market quickly, and adapt or pivot in a rapidly evolving consumer ecosystem.”
The Platform
In a business so driven by technology, getting the right differentiator is hugely critical. Reddy, who is also Head of Innovation, speaks candidly of at least 20 other companies in food delivery businesses with great technology. “But what matters are the real things, like the ability to build scale or just moving fast enough.” To keep it simple, the approach has always been to put oneself in the customer’s shoes. “In food delivery, there was an issue of minimum orders, or in quick commerce, it came about after next-day grocery delivery was the norm.”
In markets across the world, the food delivery landscape is dominated by two or three players. There’s a reason for that. “One is dealing with restaurant partners, delivery partners, and customers. All three have to be satisfied with 100% accuracy all the time on crores of orders across 700 cities,” says Rohit Kapoor, Swiggy’s CEO of Food Marketplace. With a grin, he adds, “This business is not for the faint-hearted, and execution is key.”
Soon after its listing, Swiggy launched Bolt, a service that delivers food in 10 minutes. Swiggy is a complex entity, and as its CHRO, Girish Menon, puts it, “We are many companies in one, given the varied nature of businesses. In reality, it has brick and mortar, FMCG, and tech.”
Perhaps that is one of the reasons why investors may find it hard to grasp the nuances of a business like this. “We are a platform business, while traditional businesses are about a balance sheet approach. It is necessary to look at us differently, and a key factor is how consumer engagement drives sustainable competitive advantage,” adds Bothra.
Globally, it is still early days for food and quick commerce, says Bloisi. “There is a lot of long-term potential, and even more so in India, where penetration is still low,” he maintains. He feels Swiggy can gain from “India’s resilient economic growth, rising smartphone penetration, urbanisation, rising disposable incomes, and a shift to outsourcing everyday services.”
Bloisi, who has worked as CEO and is now Chairman of iFood, a dominant player in Brazil’s food delivery business, says there is an opportunity in scaling core business lines and getting into newer areas. “At iFood, that included building a fintech environment around the platform to expand our products and services, such as meal vouchers and credit for restaurant partners.”
Quick and quicker commerce
If the numbers could tell a story, it is hard to beat the quick commerce opportunity as is visible in the revenue growth (see graph, All About The Bottom Line). A very optimistic Majety points to the US, where grocery sales surpassed those of restaurants in 2015. “In India, we believe grocery will be 25x the restaurant industry (estimated to be $60-65 billion, of which 40% is organised),” he says.
Swiggy is betting on a continued increase in discretionary spending and on the ultra-large tech parks coming up in Indian cities. “Both quick commerce and dining out will see more consumers coming in,” Majety maintains.
Majety looks at business with a three-year horizon, where if 10 things are done and one can “capture imagination at scale,” it will lead to something big. “Instamart will see higher growth rates than what we see in food delivery simply because of the headroom,” he says.
But there lies the rub. Analysts tracking the sector are quick to point out that Swiggy is still in the red (compared to Zomato, which turned profitable in FY24). “Our food delivery business turned profitable at an Ebitda level in FY23. Instamart is on a path where both growth and profitability are important, and I feel good about that path,” says Majety calmly.
The growth is clearly visible on Swiggy’s books. From just Rs 82 crore in FY22, revenue from the quick commerce segment zoomed to about Rs 979 crore in FY24. Of course, there was a commensurate increase in losses because of investment-from Rs 850 crore in FY22, losses rose to Rs 1,919 crore in FY23 before moderating to a still high Rs 1,185 crore in FY24.
Swiggy has to ensure now that it eventually turns profitable but also that Instamart takes off. According to Satish Meena, Principal Analyst at data analysis Datum Intelligence, Instamart trails Blinkit on both scale and market share. "The challenge for Swiggy is if it focuses on profitability, it can lose market share. Plus, quick commerce, with more players coming in like Amazon and a very aggressive Zepto, could pose a few problems for Instamart."
For FY24, Instamart had a loss of Rs 1,185 crore, while Blinkit was in the red by Rs 253 crore; Zepto’s loss figure was Rs 1,248 crore. Importantly, Swiggy’s revenue is the lowest of the three.
A new front has been opened in the quick commerce battle: 10-minute food delivery. Last December, Zepto, a pure-play quick commerce entity, launched Zepto Café as a standalone app to deliver food and beverages in 10 minutes, which Meena maintains will only complicate the scenario for Swiggy. Swiggy and Zomato too have announced similar plans-Swiggy through Bolt and Zomato through Bistro. Restaurants are none too pleased about this new direction in quick commerce.
But that aside, analysts and industry insiders are united in their view that quick commerce is a much bigger opportunity than food delivery. There is a marked difference between the two-a consumer could order food twice or thrice a week, but quick commerce is daily affair. “Grocery is the biggest in the overall retail pie, and it is critical for any player to get it right here. Blinkit too did not find it easy here,” points out Meena. Besides, as he says, most of the future valuations will come from quick commerce. “It is very obvious in the case of Zomato.”
Majety believes it is important for a business plan to be flexible and robust. “The fact is, things are generally very hard to predict. Food delivery is maturing, but in quick commerce, anything can happen,” he says. The potential market opportunity is determined, among other things, “by one’s right to win, unlocking the consumer opportunity, and what categories lend themselves to quick commerce.” Clearly, there is no debate on the opportunity, but the stiff competition cannot be underestimated.
Besides, customer choice is not just about pricing, Meena says. It is determined by the time taken to deliver. “You don’t always compare prices like how you do in stores. The stickiness is far greater when it comes to quick commerce,” he adds.
Majety is steadfast in his approach: identify "exciting opportunities and continuously invest in them." "For instance, food delivery in the early years was different since penetration levels were low. Look at Instamart today, and it is growing like a weed.” But the bottom line is that the businesses have to be profitable, and fast.
@krishnagopalan
