Swiggy, Zomato shares down up to 5% today; here's why

Shares of Swiggy Ltd and Zomato Ltd fell up to 5 per cent in Wednesday's as Amazon is launching its quick commerce service in India, intensifying fears of heightened competition in the space. Zomato’s Blinkit, Swiggy Instamart, Zepto, Flipkart Minutes, and BigBasket are already offering quick service services and the Amazon's entry can lead to downside risks to company guidances.

Shares of Swiggy fell 5.07 per cent to hit a low of Rs 515.95. Zomato shares declined 2.39 per cent to Rs 288.80. Swiggy's shares fell more as while Swiggy Instamart's expansion targets are now matching pace with the competition, the increased competitive intensity holds downside risks to the company's targeted timelines to double store count and for contribution and Ebitda margin to break even, as suggested by HSBC in a recent note.

"We expect Amazon to leverage its existing supplier relations to offer the largest depth and breadth of assortment available to consumers, like in the case of Flipkart Minutes, which has focussed on offering a wide range of products hitherto only available through traditional e-commerce or offline retail. Initially, Tez may also focus more on Amazon’s captive customer base, especially those with Prime subscriptions," JM Financial said.

Post Tez’s launch, there will be at least seven players with strong balance sheet/parentage competing for the QC pie against just three a few months ago.

"While this is concerning from the point of view of early adopters (namely Blinkit, Instamart and Zepto), we do not see an immediate threat to their near-term growth ambitions as there is a conspicuous shift in consumer spends from traditional e-commerce and unorganised channels to QC. This makes us believe the recent forays of traditional e-commerce players has more to do with protecting their existing turf than driving incremental channel adoption," JM Financial said.

Amazon India’s country manager, Samir Kumar, announced the move during the company’s annual event, Smbhav, in Delhi. He highlighted Amazon’s focus on “selection, value, and convenience,” explaining that the pilot project is designed to meet the demand for faster deliveries. However, the service’s name—rumoured to be “Tez”—has not been confirmed, Business Today reported.

Amazon plans to utilise dark stores—small warehouses that exclusively fulfil online orders—to aid its operations. While Amazon has not revealed how many dark stores it would set up or which cities will follow Bengaluru, sources told BT that further expansion would depend on the pilot’s success.

Amazon intends to deliver groceries and other items to customers within 15 minutes. A report on The Economic Times suggested that Amazon could offer 1,000-2,000 products for quick delivery in Bengaluru.'

In a note, CLSA this week said it expects food delivery and quick commerce will have FY27 total addressable market (TAM) of $16 billion and $27 billion, respectively. It noted that while food delivery is a two-player market and quick commerce likely dominated by three players.

If Swiggy Ltd were to improve its relative execution, the stock upside could be strong, led by both growth and valuation re-ratings (closer to Zomato), but the probability of this scenario is low, HSBC said recently.