Swiggy and its flabbergasting Revenue and Loss
All the leading companies are at the helm of their respective industries not only due to customer satisfaction, but also because of the greenery in their top and bottom line. The Profit/Loss mechanism is the single deterministic factor of the success of a company on an ongoing basis. The arrival of start-ups has resulted in minimized emphasis on profit and loss and strong focus on user growth and revenue generation. In fact, the industry has the roles of growth and strategy consultants where the prime focus is on customer acquisition, user growth and growing the business. The sustainability of the business has often taken a back seat in the start-up era and its results are now coming in front of the public.
As we entered 2023, Swiggy, one of India’s premier food delivery services, announced a 2.2 x growth in its revenues to Rs 5,705 crore during FY 22. The 2.2 x growth in revenues would indicate that the growth team has done an exceptional job, but like any other start-up, Swiggy is still bleeding cash and the operating expense increase by 131.3% to Rs 9,574 crore. The high revenue generation indicates that Swiggy is doing the right things, but it is coming at a very high cost. The tangentially opposite stories of revenue and loss for Swiggy can be attributed to market dynamics in food delivery services and the public sentiments.
1. The Fear of Zepto and BlinkIt and undying faith in quick commerce: Dedicated quick commerce players like Zepto and BlinkIt had captured market share in 2021/2022 owing to its faster delivery times and higher assortment in grocery items. Swiggy, by means of its Instamart arm had to invest heavily in outsourcing partners and acquiring dark stores to enable faster delivery times matching up to Zepto and BlinkIt. While Swiggy was successful in its endeavor to capture share of quick commerce back, but it incurred 4x cost to enable the same. As they say, everything comes at a cost.
2. Perks (or shall we say issues) of being a Zomato follower: Zomato created waves by going public, but its share price is still floundering, and it is yet to identify a means to be profitable. Swiggy will go a long way to reduce the redness in its P&L by going public, but it is following Zomato’s footsteps in the food delivery space and it is apparent that going public at any time within this year will prove to be a disaster owing to public sentiments related to Zomato’s stock. This has been a major contributor in Swiggy continuing to burn cash to maintain its foothold in the delivery sector.
3. Variation in demographics in India: The introduction of Swiggy and Zomato have greatly simplified the lives of people in India by providing food and groceries via a single click on the phone. However, Swiggy still struggles in the northern part of India where the average order size is much higher (24% higher than other parts of India). Zomato rules the roost in Northern part of India where Swiggy can outgrow its revenue within the same range of operating expense. It is imperative that Swiggy will have to focus its energies on enabling its exceptional service and customer acquisition in Northern parts of India as well.
4. Lack of diversification: Diversification is often a shot in the foot, but in case of delivery services, a little diversification of business will do more good than harm. Swiggy is already in process of launching co-branded credit card to enable faster payment on Swiggy’ s platforms. On top of that Swiggy is a late adopter to any diversification opportunities that come along like quick commerce or even merchant services which result in loss of market share and loss of margins in its arrangements with restaurants.
5. Failure of cloud kitchen: Swiggy’ s cloud kitchen business started with much fanfare, but the plethora of restaurants on its platform has led to shutdown of its cloud kitchen services like The Bowl Company. The cost of setting up the same and maintaining it is a sunk cost which has further contributed to its high expenses.
Swiggy will still take time to turn to profitability, but it needs to take some measures to ensure that it does not end up in doomsday while generating high revenues. Swiggy’ s team should now focus on cost reduction without any compromise on quality of service. Long time acquisition and high order bundling will go a long way to reduce the operating expense.
The moon-shot idea to help Swiggy will be to adopt a distributor transportation strategy to retailer where truck load optimization and supply network redesigning come into the picture. Swiggy needs to reinvent its small supply chain with its delivery partners to move towards the green signal in profitability.
