How Zomato is beating Swiggy in the food delivery race ??

Decacorn Swiggy posted Rs 8,265 Cr revenue in FY23, but its losses climbed to Rs 4179 Cr.

With that its outstanding losses reaches to 27,000 Cr.

Swiggy is looking to turn profitable by the second half of this year.

But, considering its FY23 results, it still seems like a distant dream.

On the other hand, Zomato made a profit of INR 116.90 Crore in FY23. Total revenue was 5506.90 Crores.

In the first 2 quarters of FY24, it has made a profit of INR 591 crore while generating a revenue of INR 3431 Crores.

Market Share Supremacy

In 2020, Swiggy reigned supreme with a 52% market share.

In the three years since, it has ceded market share to its arch-rival, with it’s market share falling to 45 percent.

So why Zomato is gaining market share and turning a profit in the low margin and cut-throat market of food delivery while Swiggy is bleeding?

Several moves have worked in favor of the Gurugram-based Zomato.

Initially both focused on Bengaluru.

The city has a large migrant population and people who are ready to be a early adopters.

Swiggy won that round and it still continues to control most of the city’s food delivery market.

Just like Swiggy has an iron grip on the Bengaluru market, Zomato has a leadership position in the Delhi-NCR belt.

Now Swiggy wanted to replicate Bengaluru playbook in other cities.

It considered other cities as the exact replica of Bengaluru.

That standardized approach impeded Swiggy’s growth journey.

Meanwhile Zomato placed early bets in non-metro cities.

It knew that this might not be profitable immediately but was a leap of faith.

Zomato built its business in a more localized way.

It approached each region with a strategy that was unique to that market, be it supply chain, marketing or even restaurant choices.

And focused on the long-term rewards, as opposed to the short-term hits, which has paid off.

If a company is not in Tier 2-3 cities in India, then it is very difficult for them find the next wave of users (late adopters).

In tier2 and 3 cities people still order less frequently but it will eventually increase – Zomato is betting on that.

Today Swiggy is present in around 580+ cities, Zomato is in more than 750+ cities currently.

Since Zomato's presence in more cities means that the app is also downloaded more than Swiggy.

Higher downloads result in a healthier monthly active user (MAU) base for Zomato.

In May 23, Zomato had a total of around 30 million MAUs. Swiggy had 24 million.

BUT

Despite having lower MAUs, Swiggy has a larger user base that transacts more frequently, or monthly transacting users (MTUs), when compared with Zomato.

That is why you see Swiggy's revenue is 8,265 Cr While Zomato has 5506.90 Cr in FY23.

Another reason for Zomato's higher MAUs could be that it started as a discovery tool for finding eating joints and people still use it to check reviews.

Swiggy do show ratings but does not show written reviews.

Zomato shows both so it acts as a discovery tool even today.

Swiggy acquired Dineout to get in this segment, but it has yet to show results.

Lunch Orders

During COVID, both saw an initial fall, and then a spike in food delivery as customers could not step out for eating.

Now Swiggy won here as it had more users that transact more frequently than Zomato.

But

It was also one of the primary reasons why Swiggy lost market share.

Cuz

A lot of Swiggy customer were those people who went to office and ordered lunch from there.

So during Pandemic when they worked from home rather than going to office.

Lunch orders account for about 35% of all food orders on these apps.

So when those lunch orders stopped, it hurt Swiggy more than Zomato.

In Jan-Mar 2023, this lunch share returned to pre-pandemic levels.

Swiggy’s market share had increased from 45% to 47% in this period.

Zomato is combating this with its Everyday offering of homestyle meals which is priced to compete with office cafeterias pricings.

The goal is to increase its sales during lunchtime

Cuz, lunch orders are the key to cracking the food delivery market.

Swiggy tried a similar low-priced offering called Swiggy Pop but had to eventually pull the plug on it during the pandemic.

Battle of Quick commerce

Now experts says that Swiggy should have grown much faster than Zomato, especially because its losses are much higher than the BSE-listed company.

But that didn't happen.

Because the higher losses are primarily because of investments in scaling Instamart, which is Swiggy’s quick-commerce unit.

They had to build it from the ground up, and they have made disproportionate investments in Instamart.

A bulk of the money Swiggy raised went into building Instamart and a lot of the management bandwidth was also focused on making Instamart huge.

Just like food delivery, Zomato also competes with Swiggy in the quick-commerce space.

But unlike Swiggy who built it in-house, Zomato acquired Grofers and renamed it Blinkit.

So, it spent less in the long run while getting the same capabilities.

BUT

Both companies know that Food delivery is where both of them will end up making more money.

Quick commerce is future.

That is why they are constantly looking to make their core business better.

For now, Zomato is leading in that core segment,

But market share might not be an ideal metric to gauge the landscape of the food delivery market.

Zomato is a listed company and hence it has a better recall value.

After Swiggy’s IPO, this could be rebalanced.

Swiggy is planning for a $1 billion IPO this year.

Also, you will agree that the loyalty of a customer isn’t to an app, but to whoever offers the cheapest price for a meal.

Unlike in telecom where the cost of switching from one player to another is high and is more cumbersome which deters people from switching over, in food delivery segement there is not such barriers.

So, it is highly unlikely that the food delivery market will be dominated by a single player.

As of now,

Both players are prioritising profitability improvement over market share gains and Zomato is ahead in that race for now.

I am looking forward to the day when Swiggy catches up with it.

Until then happy ordering.

#swiggy #zomato #fooddelivery #quickcommerce