Delivering less? Swiggy, Zomato struggle to keep food delivery momentum going

Zomato was not alone. Its arch rival, Swiggy also showed similar results.

The Bengaluru-based firm reported a gross order value (GOV) of Rs 7,436 crore. While this was a 19.2 percent year-on-year (YoY) improvement, on a sequential basis, its GOV grew just 3.4 percent in the October-December period.

"It (October-December) is a quarter which is slightly softer than other quarters, but we are growing at 19.2 percent, which is within the range of what we've guided to the markets about 18 to 22% growth for the category," Rohit Kapoor, CEO, Food Marketplace, Swiggy, told analysts while discussing quarterly results on February 5.

Kapoor said that the recent measures by the government, during the Union Budget 2025, will provide a shot in the arm for consumption. He also added that the company is continuously innovating which will drive business higher, something that Swiggy chief Sriharsha Majety and Zomato's top boss Deepinder Goyal have told Moneycontrol in previous interviews.

“Even if there are some headwinds in the economy per se, in certain segments, the present budget, which has provided tax cuts, gives some impetus to a large section of the taxing paying segment below Rs 12 lakh. Many of those will be consumers of our services,” Swiggy's Kapoor added.

Similarly, his peer, Zomato's Ranjan, said the slowdown is temporary and remains optimistic about a recovery going ahead primarily because the company is poised to grow at over 20 percent YoY.

"Notwithstanding the current slowdown, we are positive about a recovery soon and remain confident of the long term outlook of 20%+ yearly gross order value (GOV) growth in the business given the strong fundamentals," Ranjan added in the company's shareholder letter.

Swiggy's GOV growing faster than Zomato, albeit from a lower base, even resulted in the former gaining 26 basis points (bps) more market share from the latter, as per the analysts at Morgan Stanley. Zomato is however still the leader in food delivery with a market share of around 56-58 percent, ahead of Swiggy's 42-44 percent, analysts have previously said.

Both Swiggy and Zomato saw their bottom line being impacted during Q3FY25. While that was largely because their quick commerce businesses need more investments, experts and other industry participants said the core food delivery business is losing steam.

Food delivery hits a wall

While the top management at both Swiggy and Zomato expect to grow their food delivery businesses between 18-22 percent in the medium to long term, achieving these targets may be a tall order.

“Food delivery growth is hitting a ceiling. The slowdown has not been limited to last quarter. It has not been a fast-growing category for the past three or four quarters,” said Satish Meena, Founder, Datum Intelligence – a market research firm.

“While they (Zomato and Swiggy) are still be able to grow about 19-20 percent yearly, it will be very difficult to replicate that in the next fiscal year…We expect similar (muted) numbers for food delivery over the coming few quarters. There might be some uptick if there is a consumer spending picks up...but it is not going to very significant,” he added.

Zomato has been reporting slower sequential growth over the past three or four quarters. Its GOV grew 9.8 percent quarter-on-quarter (QoQ) in Q1 FY25, which reduced to 4.6 percent in the next quarter (Q2), before posting 2.3 percent (QoQ) growth in the December quarter.

Growth has been marginally better for Swiggy, which reported an 8.9 percent QoQ growth in GOV in Q1 FY25, which went down to 5.6 percent in Q2, and 3.4 percent in Q3. The growth was however more pronounced at Swiggy because it has a lower base than Zomato, experts highlighted.

Customer acquisition pangs

According to industry watchers, the food delivery platforms have faced challenges in onboarding new customers, combined with an immaterial change in total orders being placed. Most of the current growth, they say, has come from margin improvement and not new customer additions.

“They (Swiggy and Zomato) have penetrated the markets as much as possible. It is getting more difficult for them to recruit new customers for the food delivery business. Their focus now seems to be on (growing) dining-out,” said Riyaaz Amlani, CEO and MD, Impresario Hospitality and former President of the National Restaurant Association of India (NRAI).

To be sure, Zomato’s average monthly transacting customers (MTCs) for its food delivery vertical declined to 20.5 million in Q3 FY25, from 20.7 million a quarter ago. On a YoY basis, its MTC increased just 9 percent from 18.8 million in the year-ago period.

Swiggy also witnessed only a marginal increase in MTCs from 14.7 million in Q2 FY25 to 14.9 million in Q3. It had 12.5 million transacting users in the December quarter last year. In fact, the company has indicated that most of its food delivery growth in Q3 came from improvements in contribution margin and operating leverage, and advertising, Swiggy shared in a letter to its  shareholders.

“It is also clear that, as their (Swiggy and Zomato) pricing has increased – the platform fees and (other components) have all come in, the delivery demand has tapered down,” said Anshul Gupta, co-founder, EatClub (formerly BOX8) and member of the NRAI.

It should, however, be noted that the NRAI has had frequent run-ins with the food aggregator platforms over alleged unfair commissions and anti-competitive practices. Most recently, the restaurant body announced plans to approach the Competition Commission of India (CCI) due to Swiggy and Zomato’s 10-minute food delivery apps.

Regardless, both the food delivery majors are also finding it difficult to scale beyond the top markets. According to estimates from restaurants listed on these platforms, over 80 percent of their business currently comes from the top eight cities.

“Food delivery is not growing very fast beyond the top eight or nine cities, and within the top cities too, there is growing competition with dining out and customer spending limitations,” Meena said.

10-minute services may not deliver

To spur growth, both Swiggy and Zomato have started experimenting new use cases. The firms have launched 10-minute food delivery services, both in-app as well as separate apps.

Swiggy recently launched Snacc, its quick food delivery app for “low-involvement” consumption to compete with Zomato-owned Blinkit’s Bistro. It has also been steadily growing its ten-minute food delivery service Bolt, which now contributes to 9 percent of its overall food orders. Aside from Bistro, Zomato, too, has started experimenting with 15-minutes deliveries on its own.

This comes amid intensifying competition in the ten-minute food delivery space, be it from established players like Zepto Café or newer startups like Swish and Zing.

“Both companies are looking for more traction to come in food delivery. Hence, ten-minute food delivery is something which everyone wants to roll out, to bring back that excitement. But as of now, it looks like that is also not bringing in incremental orders. Some of the existing orders have just shifted into ten-minutes. There hasn’t been a significant jump in incremental orders,” Meena said.

The analysts at Morgan Stanley, in a client note on February 5, however said Swiggy's Bolt is seeing good traction as it now accounts for 9 percent of total orders up from 4 percent in the previous quarter.

Irrespective of the buzz around quick deliveries, and what results it will yield for companies, it is still early days for ten-minute food delivery, and the services are not likely to have a meaningful impact on overall food delivery returns in the near term.

“I don't think any of this has had a material impact on Zomato restaurant aggregation food delivery business so far. All these initiatives (any form of 10-minute delivery in India today), are still at a very early stage and are not likely to move the needle at all, even if you aggregate and put them together,” Zomato’s chief financial officer Akshant Goyal said in a recent earnings call.

While Swiggy and Zomato continue to make improvements in food delivery profitability – Swiggy grew its adjusted EBITDA margin improved to 2.5 percent of GOV in Q3 from 1.6 percent in Q2, and Zomato’s adjusted EBITDA margin grew Q-o-Q from 3.5 percent to 4.3 percent of GOV in Q3 – their primary hurdle going forward will be customer acquisition.

The margins however will be watched carefully as both companies double down on Instamart and Blinkit, the quick commerce verticals, to keep rivals like Zepto, Flipkart Minutes and Big Basket at bay. A lacklustre food delivery business coupled with increased investments in rapid delivery may be in for a double whammy for Swiggy and Zomato as they are publicly listed and need to deliver results consistently. How the two balance these expenses, while onboarding new food delivery customers, remains to be seen.

Swiggy's share price was down 5.5 percent to Rs 395.2  apiece at 2:20 pm on the BSE on February 6 and Zomato was down 0.56 percent to Rs 229.9 apiece on the BSE.