SWIGGY VS zomato

FOR INDIA’S ONLINE food delivery giants Swiggy and Zomato, the Covid-19 lockdowns were the ultimate moment of truth. They presented a growth opportunity like never before. People were locked in their homes for months, discretionary spending on food services was at its highest, existing restaurants flocked to their platforms en masse, and new cloud kitchens mushroomed. Consequently, average order values (AOVs) peaked and order numbers shot up to record levels. Yet, improvement in operating margins remained elusive and the writing on the wall became glaringly clear—there isn’t much money to be made on pure-play food delivery business in India. But why is it so?

In food delivery, profitability means improving AOV and optimising delivery cost. The average order value of $5 for food delivery in India is approximately six times lower than that of peers in the US and Europe, according to a report by global stock investing platform Stockal. Even with one of the highest commission rates in the world that go as high as 30 per cent of the order value, Indian food delivery firms end up losing money on a majority of orders due to high delivery costs and discounts.

The biggest headache: sub-optimal usage of riders. Food delivery 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. Swiggy and Zomato operate a marketplace model involving customers, restaurants and riders, and it becomes very tough to incentivise all three as they compete against each other. Discounts for customers and restaurants, as well as incentives for riders, lead to massive cash burn.

Even at the height of growth, these inherent issues continued to haunt food delivery players. It led the start-up giants to strategic crossroads, forcing them to make bold moves that reaffirm or redefine the nature of their businesses. In particular, to keep riders meaningfully occupied during the hours they log in and to incentivise them through the day, it was inevitable that food delivery marketplaces step outside food to other verticals.

So, now you have Zomato wanting to take control of the restaurant economy with its B2B supply platforms and Swiggy gradually building its local courier delivery and). At the same time, the fear of missing out (FOMO) is driving them into one another’s turf. While Zomato is in the process of snapping up 10-minute grocery delivery start-up Blinkit (erstwhile Grofers) to compete with Swiggy’s Instamart, Swiggy is foraying into Zomato’s stronghold of restaurant discovery and reviews with an investment into table booking app Dineout. And both are working on pay later services to help users order food and clear bills at the end of the month.