Swiggy is following a path that seems similar to what Meituan, one of China's largest O2O (online-to-offline) platforms that delivers food, sells movie tickets and offers hotel reservation, has done so far, reports Patanjali Pahwa.
It required nerve. In July 2018, Swiggy knocked back Google's term sheet, which offered the food tech company almost $250 million in exchange for equity and some data.
Just a month before the offer was refused, Swiggy had turned unicorn. It had incoming interest from Tencent and aimed to close a round of $750 million to $1 billion soon.
If it had accepted Google's offer, the Bengaluru-based food tech company would have had its moment in the sun sooner. But it said no.
Four months later, Swiggy announced that it had raised $1 billion. Now, reports of Zomato raising $800 million have surfaced.
The arms race between these two food tech companies will soon reach the crest of the wave. But the question is: What will Swiggy do with $1 billion?
One billion dollars is a lot of cash. There is only so much food that can be delivered that can utilise and justify that amount of capital raised.
To understand what Swiggy is trying to do, it is important to take cues from one of its investors from China, Meituan Dianping.
Swiggy is following a path that seems similar to what Meituan has done so far.
Meituan is one of China's largest O2O (online-to-offline) platforms offering a range of services. It delivers food, sells movie tickets and offers hotel reservation.
In an Indian context, Meituan is a combination of Swiggy, Dunzo, BookMyShow and Oyo. But it is not just that. It also has a strong e-commerce arm as well as being a provider of mobility solutions.
Meituan raised $4 billion in IPO, which valued the company at $60 billion. Swiggy, on the other hand, is valued at $3.3 billion. There are parallels to be drawn.
Swiggy has already laid the groundwork for a lot of what Meituan has been doing for a while. How it executes these different products will define how closely it can follow Meituan's path and success.
The first thing that Swiggy will do with the cash is scale. At present, the company has operations in 60 cities, according to media reports.
There are plans to go deeper within Tier-I and Tier-II cities and add another 40 cities within the next six months. However, according to sources, even now, almost 70 per cent of Swiggy's total revenue comes from the top six cities.
In December, the company drew in 28 million orders but then that month is an anomaly. With New Year's Eve and Christmas, both heavy ordering days, the numbers usually swell.
Swiggy expects this number to go up and for that, it needs to put more delivery personnel on bikes and cycles. The biggest challenge Swiggy will have is scale.
As one goes deeper into the country, it gets tricky to generate demand. In small-town India, going out for a meal is considered an event, ordering in is passe. But, Swiggy believes this is changing.
"There are friction points when it comes to eating out in smaller cities as well," says Vivek Sunder, COO, Swiggy.
Traffic jams, he explains, may not be as severe as in Bengaluru or Delhi, but they serve as a deterrent to those wanting to go out. But, will these places generate demand when the discounts fade? Sunder thinks so.
"We don't need to target the entire city, just a few zones are enough," he says. "If these two zones can generate demand equal to the worst zones of Bengaluru, our job is done."
However, it is not just food on Swiggy's mind. The second phase of Swiggy's plan is already in motion. By the end of the month, Swiggy will launch its local commerce service in Gurugram.
The way it will work is very similar to what Meituan does in China or Dunzo in India. The company has already tied up with supermarket chains, pharmacies, meat shops, pet stores and flower vendors.
Swiggy will demand a commission of two-three per cent and charge a delivery fee on every order from the customer. This gives Swiggy the opportunity to utilise its fleet.
At present, the company has close to 150,000 people delivering food across the country.
This opens a new way of generating revenue and also adds a new dimension to how far Swiggy can take this concept.
"Ultimately, you will see Swiggy buy and deliver phones and laptops," says a Mumbai-based investor who asked not to be named. "The ticket size is larger and even at two-three per cent commission, it will be able to make significant money to generate a profit on the sale," he adds.
Over the next few months, Swiggy will also unveil its own restaurants called dark stores or dark pods like they're called in China. They serve a simple purpose: create supply.
One of the biggest challenges that Swiggy has is that it needs a consistent, ever-increasing supply of restaurants so that it can keep plugging in the needs of customers.
These restaurants need to be of good quality and have a short turnaround time. Swiggy has tried to build out that supply much to the chagrin of the restaurants association of India.
Swiggy argues that there is nothing wrong here. All it is doing is filling a gap in the market.
"What India needs is global quality food supply, which India is lacking," says Vishal Bhatia, CEO, Swiggy Supply. "This helps Swiggy increase access to single serve, hygienic, economic food," adds Bhatia.
And that's where Swiggy's private brands and its cloud kitchens come in. "This was always going to happen," says a Swiggy employee.
He asked not to be identified as he is not allowed to talk to the press. "There is enough space for everyone to exist and make money," he adds.
He argues that not only is Swiggy opening its own dark restaurants (without a storefront and with just a delivery kitchen), it is also building out Swiggy Access -- a concept that Zomato has tried out, too.
Zomato calls it Zomato Infrastructure. Here, the food tech companies offer kitchen space on lease to restaurants, help direct their stocking and menu via data collected from years of recording food ordering patterns and generate more orders. Swiggy, in turn, takes a bigger commission.
So far, Swiggy has been running its pods only in Bengaluru and Hyderabad, but it will expand to Gurugram and Mumbai in the next few months. A significant portion of Swiggy's $1 billion will be invested in this part of the business.
All of these initiatives are straight out of the Meituan playbook. And Swiggy has been trying to implement as much as it can in India despite the marked difference in the customer behaviour of the two countries.
There are a few parts of Meituan's business that it can still replicate: hotel bookings, flight bookings and ride-sharing. Meituan has suffered greatly when it comes to ride-sharing in China.
In India, there are policy hoops that Swiggy will have to jump through to get close to anything where it can transport people from one city to another. That may not happen just yet. But then that's 2019. Maybe in 2020.