Foodtech Industry’s ultimate Duopoly
In today’s edition of TOPICAL Wednesday, we will talk about Swiggy and how it is positioned against Zomato Ltd.
I am not the first to observe that we are highly addicted to Swiggy and Zomato. While delivering food from restaurants to consumers’ destinations could be as old as the restaurant business itself, these modern reincarnations of food delivery—where you can get any food of your choice from any restaurant in your city delivered to your doorstep through an app—feels truly amazing. All of this would not have been possible without smartphones and the internet, so it is apt to say that these are new-age companies in the truest sense. Swiggy and Zomato together command 90% of the online food delivery market, and I think this will remain the same unless ONDC comes up with something revolutionary.
The quick commerce business is a whole other animal. Started by Zepto and further popularized by Swiggy Instamart and Blinkit by Zomato across India, you can now get all your groceries, electronics, and clothes delivered within 10 minutes to your doorstep, which is truly astounding. The Indian industry deserves credit for this innovation, as India is the only country offering 10-minute delivery services worldwide. The concept has taken off like never before, and major giants like Amazon, Flipkart, Tata, and Reliance are also entering the industry. Already involved in the delivery business, both Zomato and Swiggy have quickly scaled their quick commerce operations. While Blinkit is the leader, these companies combined hold a market share of 70%.
Both Zomato and Swiggy are features of modern Indian society. Zomato was listed in 2021 and has since delivered a return of ~118%, making it one of the best-performing consumer tech stocks. Now its rival has filed for an IPO. Swiggy recently received SEBI approval for its IPO, which is expected to open in November 2024, marking yet another major company going public in India.
While Zomato continues to be a favorite in the investment community, and given that both companies have similar business dynamics, let’s compare them to see if Swiggy can also perform like Zomato when listed can mimic the returns of Zomato.
IPO Details:
Issue Size – Rs. 10,414 Cr.
– Fresh Issue – Rs. 3,750 Cr.
– Offer for Sale – Up to Rs. 6,664 Cr.
Fund Utilization:
1. Debt Repayment – Rs. 137.4 Cr. for Scootsy, a subsidiary.
2. Expansion of Dark Store Network:
– New Dark Stores – Rs. 559 Cr.
– Lease or License Payments for Dark Stores – Rs. 423.3 Cr.
3. Technology and Cloud Infrastructure – Rs. 586 Cr.
4. Marketing and Promotion – Rs. 929.5 Cr.
5. Remaining Funds: Allocated for inorganic growth and general corporate purposes.
Total Addressable Market
Food Delivery
Online Food Delivery – The Indian food delivery market expanded from Rs. 11,200 Cr. in 2018 to Rs. 64,000 Cr. in 2023. It is projected to grow further, reaching between Rs. 1,40,000 crore – 1,70,000 crore by 2028, with an annual growth rate of 17.22%
(Source: DRHP)
As organized supply becomes more available and affordable, and with people eating out more often, leading busier lives, and living in rapidly growing cities, Indians are likely to order food online more frequently.
Annual Transacting Users – By 2023, there were between 80 and 85 Mn (ATUs) in the Indian food delivery market. Of these, 25-29% were Monthly Transacting Users (MTUs). This percentage is expected to increase to 27-32% by 2028, highlighting a trend towards more frequent and habitual online food ordering.
(Source: DRHP)
Average Order Value – The average order value (AOV) in the Indian food delivery market increased from Rs. 290 – 320 in 2018 to about Rs. 425 in 2023. It is expected to rise further to around Rs. 542 by 2028.
(Source: DRHP)
Online Dining out – Zomato and Swiggy offer a feature that allows users to make dining reservations through their apps. The current online dining market is valued at around Rs. 5,000 crore and is expected to grow significantly, reaching between Rs. 32,000 Cr. – 40,000 Cr. by 2028. This represents an anticipated growth rate of 46-53%.
(Source: DRHP)
Quick Commerce
Quick commerce, a service introduced by Zepto in 2021, reached Rs. 22,400 Cr. by 2023. It is expected to grow rapidly, reaching between Rs. 3,20,000 crore – 4,24,000 Cr. by 2028, with an annual growth rate of 60-80%.
However, it’s challenging to determine the exact market size because quick commerce is a new concept. Just as e-commerce was expected to take market share from physical retail, quick commerce is seen as the next step, potentially taking share from e-commerce. However, the most impacted by quick-commerce were unorganized kirana stores. Quick commerce has the potential to disrupt the entire retail sector, affecting both online and offline markets, as well as organized and unorganized sectors. It is yet to be seen what could be its exact market size in the future.
Total TAM – The TAM served by Swiggy and Zomato was around Rs. 91,400 Cr. in 2023. This is expected to grow significantly, reaching between Rs. 4,04,000 Cr. and Rs. 6,34,000 Cr. by 2028.
Now, let’s get to the main topic i.e. Swiggy Vs. Zomato
Food Delivery
Percentage of Sales – For Zomato, food delivery makes up about 53% of its total revenue, while for Swiggy, it accounts for 49% of its total revenue in the FY2024.
Zomato has outperformed Swiggy in all areas; delivering more food, reaching more locations, having a higher contribution margin, being profitable, and having more users and restaurants on its platform.
Quick Commerce
Quick commerce is a new market where both companies started afresh. Zepto launched 10-minute delivery services in April 2021, followed by Blinkit (acquired by Zomato) in August 2021. Swiggy Instamart began offering 10–15-minute deliveries in 2022.
Percentage of Sales – In the FY2024, quick commerce contributed about 19% of Zomato’s total revenue, while for Swiggy, it made up ~9% of their total revenue.
Zomato leads Swiggy in terms of revenue, fewer losses, and more orders, even though both have the same number of active dark stores. Currently, Blinkit is the market leader in quick commerce with a 40% share, followed by Instamart at 32% as of January 2024. Instamart is closely followed by Zepto, which holds a 28% share, putting Instamart’s second place at risk.
Quick commerce is still a young industry, only three years old. As more consumers adopt this service, major players like Flipkart, Tata, Amazon, and Reliance are preparing to enter the market. However, not every company will survive in the long run, so it’s too early to judge the industry based on current standings.
Other Segments
Zomato
Beyond food delivery and quick commerce, Zomato has expanded into several other services:
1. Hyperpure: This is a B2B service providing kitchen supplies and supply chain solutions for restaurants and hotels, accounting for 26% of Zomato’s total revenue.
2. Dining-Out: A feature that helps users find restaurants, book tables, and get deals on dining bills through the Zomato app.
3. Zomato Live: A ticketing service for discovering and booking tickets to live events like food festivals and concerts in India.
Swiggy
Apart from food delivery and quick commerce, Swiggy offers the following services:
1. Dineout: This includes restaurant reservations and event ticketing, showing significant growth in gross order value.
2. Swiggy Mall: A new venture offering a wide range of products through large dark stores, blending traditional e-commerce with quick commerce.
3. Swiggy Genie – Swiggy Genie is a hyperlocal delivery service that allows users to send or receive packages, documents, and other items within their city.
4. Supply Chain & Distribution: This segment focuses on selling groceries and household items to wholesalers and retailers. It contributes about 39% of Swiggy’s total revenue.
Closing Remarks
The sectors that Zomato and Swiggy operate in are still young and constantly evolving, making it uncertain how they will develop in the future. Currently, Zomato seems to be ahead of Swiggy, but not by a margin that Swiggy can’t overcome. With new funding, Swiggy plans to focus on increasing its number of dark stores and may consider acquisitions in the long run. Ultimately, it’s up to you to decide whether to invest in one or both of these companies. One thing is certain: the competition between them and new entrants will be interesting to watch.
And, If you still think you’re not addicted to these platforms, just open your order history in these apps and check the total order value for just the past week. We might not notice it, but the amount slowly creeps up!
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