Moneycontrol
Last Updated : Feb 13, 2019 04:15 PM IST | Source: Moneycontrol.com

Comment | Grocery delivery may be a natural extension for Swiggy, but it won’t be easy

In grocery delivery, Swiggy will have to fight it out with likes of Amazon, and Walmart backed Flipkart.

Sounak Mitra @sounakmitra

Sounak Mitra

How Swiggy synchronises its existing delivery fleet of estimated 125,000 partners with Swiggy Stores will determine the Naspers-backed food tech startup’s sustainability. Through Swiggy Stores, its latest attempt to make into the big league, the firm would start delivering daily essentials, including grocery, the company announced on Tuesday.

With the latest move, Swiggy is entering a market that is dominated by Big Basket, Grofers, while biggies like Amazon, Walmart-owned Flipkart and China’s Alibaba have been trying to build their presence. Big Basket is considered to be the leader, followed by Grofers.

Online grocery is a low margin business, discounting is a key parameter (like any other online commerce business in India) and time taken for delivery is one of the most important things.

Swiggy will have a few advantages. Firstly, it plans to deliver goods within an hour, while Big Basket and others have designated delivery slots in the morning and the evening and Amazon has a two-hour delivery service. Secondly, Swiggy plans to deliver medicines, among other things. This could emerge as a game changer.

Finally, Swiggy’s plan is to play the delivery agent, and not run a business that would have private labels or direct sourcing from mandis. What it would essentially do is that it will act as an enabler to kirana stores and super markets to expand their business by being the delivery agent. But, companies like Localbanya that followed a closely similar delivery model have failed to keep the business running.

For now, Swiggy’s plan is to replicate its food delivery model to grocery, medicines and other daily essentials. The model, thus, is different from how rivals like Big Basket and Grofers operate.

In any case, penetration of online grocery is estimated at 0.1 percent and is an urban-only phenomenon. The opportunity is huge. According to a February 2018 report by Crisil, investors’ interest has increased by 7 times in the segment between 2017 and 2018.

In December, Swiggy raised $1 billion to support expansion. Venturing into new business areas makes sense for Swiggy as the food delivery market has got crowded in the recent past with ride-hailing companies Ola and Uber entering the segment.

However, the question remains, will delivery of grocery and other daily essentials bring enough money to make Swiggy profitable? It is too early to tell.

The company reported a loss of Rs 397 crore in the year ended March 2018, up from Rs 205 crore in the previous year, while the revenue rose to Rs 468 crore from Rs 146 crore.

Not having inventory is an asset-light model. There is no investment in warehousing or inventory management and that should save costs. But, if Swiggy follows its current food delivery model in new businesses, it will end up getting into the discount game which will further increase its losses.

To sustain, it will need more funds and the need will keep increasing considering the fact that it will be competing with giants like Amazon and Walmart-Flipkart who can always put in a billion dollars or two if the need arises. What Swiggy needs to do is to find a way to stay in the business without getting into the discounting game, and start making money.
First Published on Feb 13, 2019 04:15 pm
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