Swiggy – 80% Business from Food Delivery, 500 Cities, Operating Metrics

Swiggy the Online Delivery partner for restaurants is now present in the Top 500 Cities of India. The food delivery business is the mainstay of the business and accounts for 80% of the company’s revenues.

Testing if the spaghetti sticks to the wall or not, Swiggy after a considerable deliberations ventured into Cloud Kitchens – as there is dearth of available supply in the country, Swiggy launched its own set of private brands and helped restaurants to expand rapidly without worrying about capex. Swiggy Stores – hyperlocal grocery marketplace offering items of daily consumption; Instamart quick delivery was launched during Covid which utilizes dark stores as the back-end. Swiggy wants to have only 5,000-6,000 SKUs of daily consumption items versus 20,000 for Grofers or BigBasket and plans to become an on-demand service play. Milk-tech: SuprDaily brand was recently acquired by Swiggy (competes with BBdaily and Milkbasket). The above combined contribute the remaining 20% of the revenue.

Swiggy suffered due to COVID-19 Lockdown. Restaurants closed due to high fixed costs and a steep decline in footfalls 90% evaporation of business in certain pockets. However, it has now reasonable bounced back to 60-65% of pre-covid level business.

Swiggy has increased engagement in Tier 2/3 towns as several people have migrated from metro cities to their home towns and are working from home. Swiggy has a monthly transacting base of 10-12 mn customers. Pre-Covid, the company recorded 4-5 transactions per month per customer. Swiggy witnessed Average Order Value (AOV)s of Rs400-500 per order when it commenced operations in metros; over time AOVs have trended down as Tier 2/3 cities share has increased. Swiggy expects AOV to increase up to Rs340 on a steady state basis.

COVID-19 is Changing Food Delivery Business – India presently has 200-250K odd restaurants versus 7 mn in China. Nearly 20% of those restaurants haven’t operated since the first lockdown. Many have shut down permanently. Uber Eats entered the market but failed. According to the company, India is a differentiated market and a global playbook can’t be used. Supply shortages make it important to maintain supply-side relationships and an on-demand service takes time to build moats.

Delivery fleet Optimization. Swiggy will want to leverage its current delivery fleet better as it launches new delivery businesses as discussed above. It has consciously stayed away from B2B business and is mainly focused on B2C.Order densities in India are still not high enough for a lot of batching to be done ideally, a delivery agent should be doing many-to-many deliveries. However, because of low density of orders, Swiggy manages to do one-to-one or one-to-many deliveries (average of 2 deliveries an hour). There is significant potential to drive efficiencies in delivery logistics.

If one thinks that they can enter the market with huge Capital, it will not be enough to garner market-share in this business as the dynamics are different.