While Zomato & Swiggy are the leading players in the Indian food delivery industry, the two companies have taken different strategic directions otherwise.
In our blog on Zomato’s business model, we discussed the three key pillars that drive Zomato’s revenue — Food Delivery, Dining Out & Sustainability. Swiggy, on the other hand, has been expanding its focus from just delivering food to being able to deliver anything.
In this blog, we will have a look at the different business segments Swiggy has launched since its founding in 2014 to develop a better understanding of how it makes money, but before we do that, let’s learn about the founding story of Swiggy to establish better context.
How Swiggy Started
Most of us know Swiggy is in the food delivery business but the startup’s parent company Bundl was originally focussed on e-commerce logistics. Started by Sriharsha Majety & Nandan Reddy, Bundl was born out of the idea to start a business that would be a mix of technology jobs & offline jobs.
“We thought that we will find that competitive advantage by being not just a pure software company or not just a pure offline company,” said Sriharsha in an interview with YourStory.
At that time, the logistics & shipping sector within the e-commerce industry was unorganized, which is why the two founders decided to go after that market.
However, it wasn’t easy because they had trouble finding a technology partner. Since nobody was willing to join their venture, they were forced to hire a contractor to build the product.
But by the time they came out with the product, the market dynamics had changed with companies like Flipkart & eBay shipping products themselves.
“That’s when we knew that we had to change our focus and it wasn’t worth the opportunity cost. Thankfully, we didn’t have any employees, investors and liabilities at that time,” said Sriharsha on their decision to shut Bundl down, a year after they had started working on it.
After Bundl was shut down, the two founders reflected on what the failed venture had taught them. Realizing that the logistics industry was inept in using technology, they started Swiggy, a company that would operate at the intersection of technology and logistics.
Since then, Swiggy has grown to become one of the leading players in the India food tech space. In Dec 2019, the company had around 160K restaurant partners across more than 500 Indian cities, backed by a delivery fleet of 2.3 Lakh.
Swiggy’s Business Segments
In exchange for playing the role of a middleman, Swiggy charges both the hungry customers & restaurants.
Typically, restaurants are charged 15% – 25% commission on the order bill amount, the percentage of which varies on the basis of different factors — the number of orders received, restaurant location, commission charged by competitors, etc.
In an effort to get restaurants to list exclusively on Swiggy, the company also offers a discount of 2-3% on the food delivery commission.
On the customer side, Swiggy does not have a minimum order value, leading to an increase in the logistics cost per order.
So, once the company had established a strong foothold in the food delivery space, it started charging customers a nominal delivery fee to customers as well, which depends on the order amount. During times of high demand, special occasions & midnight delivery, Swiggy even charges a surge fee to customers in select markets.
Similar to its competitor Zomato, one of the ways in which Swiggy generates revenue is by selling the attention aggregated on its app to restaurants looking to market themselves.
Swiggy allows two different kinds of advertising across its web and app properties — higher priority listing of restaurants & banner promotions.
Swiggy Access ( Swiggy Operated Cloud Kitchens )
In Nov 2017, Swiggy launched Access, a programme to house multiple restaurant partners under a Swiggy operated central delivery kitchen facility in order to help partners expand to neighbourhoods they don’t operate in.
For partner restaurants, the upside of joining Access is that Swiggy does not charge them rent or deposit, helping them save up to 25% of their operational costs. Restaurant partners, however, have to pay a higher commission for food delivery compared to restaurants that operate on the regular marketplace model.
Other than restaurant partners, the central kitchen also hosts brands operated under the Swiggy label. Think of the model as being similar to Amazon’s online marketplace where it not only hosts sellers but also sells products under its own brand label.
Explaining how Swiggy Access leverages technology, Vishal Bhatia, head of Access told YourStory in an interview,
“One of the things that helped us is that we have spent a lot of time in understanding and analysing the demand in particular areas. Thus, we make sure the partners move to the right locations. We also do a lot of due diligence before setting up a Swiggy Access kitchen in a particular area.
The location is pinpointed purely basis hyper-local demand. So, even if we move the kitchen location a few kilometres away, the entire demand profile shifts. Then we bring in the intelligence in choosing the right partners basis the kind of cuisines that will do well.
Once the partner is in the kitchen, we focus on just setting them up for operations. We also invest in IoTs that helps bring down the partner expenses like fuel and electricity consumption. As we move along, we will invest more to help partner operations.”
By Nov 2019, Swiggy Access had grown to a 1000 kitchen facility, housing 150+ restaurant partners & 400+ restaurants.
A subscription programme launched in August 2018, Swiggy Super gives subscribers access to free delivery on all restaurant orders above Rs 129, without any surge fees during rain or excessive demand.
While membership prices are obviously dynamic, at the time of writing, a one-month Swiggy Super membership is priced at Rs 79 & the three-month membership is priced at Rs 179.
Founded primarily to meet the needs of working professionals who can’t cook and are looking for a daily meal fix, Swiggy Pop offers users quick access to single-serve meals in the range of Rs 99 to Rs 200 from popular local restaurants without consumers having to pay delivery, taxes, or packaging charges.
Unlike Swiggy Super, Pop isn’t a subscription service, it is a just a segmented food delivery initiative aimed at making the process of ordering single-serve meals quicker & affordable.
A standalone app launched by Swiggy in June 2019, Swiggy Daily gives consumers access to homestyle meals by bringing together home chefs, tiffin service providers and organised vendors under the Swiggy Daily platform.
Using Daily, users can schedule meals in advance or opt for a daily, weekly or monthly subscription.
Swiggy Stores & Swiggy Go ( Going Beyond Food Delivery )
In 2019, five years after Swiggy was founded, the company launched two new services — Swiggy Stores & Swiggy Go, in an attempt to go from delivering food to delivering anything.
While Swiggy Stores is about delivering items like groceries, flowers, and medicines among other things to people’s doorstep within an hour, Swiggy Go is an instant pick & drop service that can be used to send packages anywhere across the city.
According to Swiggy, the Swiggy Go services can be used for a variety of tasks like dropping laundry, fetching forgotten keys, delivering lunch boxes to the office or school & even delivering documents or parcels to clients.
Swiggy’s FY2019 Revenue
In FY19, Swiggy reported a revenue of INR 1292 Cr with total expenses of INR 3637.6 Cr, which means it made losses of INR 2345.6 Cr in the same period.
On the other hand, Zomato, Swiggy’s biggest competitor, made revenue of INR 1350.47 Cr with total expenses of INR 3109 Cr leading in FY19, meaning it made a loss of INR 1758.5 Cr during the same period.
While none of the two companies are profitable yet, Swiggy is clearly burning more cash than Zomato. However, it’s important to note that both companies are headed in different directions strategically, something which will play a major role in how long it will take the two to achieve profitability, if at all.
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