Why Zomato continues to eat into Swiggy’s market share

Sriharsha Majety, Swiggy CEO and Deepinder Goyal CEO of Zomato

The food delivery market has been a hotly contested space between Zomato and Swiggy for several years now. In 2020, Swiggy reigned supreme with a 52 percent market share. In the three years since, it has ceded space to its arch-rival, with Swiggy’s market share falling to 45 percent.

Data from Swiggy’s largest shareholder, Prosus, showed that its gross merchandise value (GMV) was at $2.6 billion in FY23, as opposed to Zomato’s $3.2 billion during the same period.

What gives? Several moves, such as penetrating deeper into Tier 2 cities and beyond, first-mover advantage, and a more pan-India focus, have worked in favour of the Gurugram-based Zomato.

The Bengaluru fallacy

Bengaluru was an area both of them focused on, thanks to its large migrant population and a crowd that has been an early mover in several verticals. Swiggy won that round, as it continues to control most of the city’s food delivery market.

Swiggy and Zomato did not reply to an email requesting comments.

An internet analyst tracking the sector said that Swiggy, which had become unbeatable on home turf, was looking to replicate this playbook in other cities. “That standard/uniform approach impeded Swiggy’s growth journey,” the analyst said.

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

Where Zomato differed in its approach is in placing early bets in non-metro cities, a move that was not considered profitable, as it took that leap knowing that these regions would not yield immediate results.

According to the analyst quoted above, Zomato built its business in a more localised way, approaching each region with a strategy that was unique to that market, be it supply chain, marketing or even restaurant choices.

Focusing on the long-term rewards, as opposed to the short-term hits, has paid off for the company.

“With Tier 2 cities and beyond, there will be questions on revenue today versus medium-term revenue. If one doesn’t operate in those cities, they will never get anything out of it but habit creation is important. If that creation is not denting overall profitability, a company must chase that because where else will they get the next wave of users from? The frequency increase will happen eventually – Zomato saw exactly that,” the analyst added.

Another chink in Swiggy’s armour may be its smaller presence. While the Bengaluru-based company is present in around 580 cities, its Gurugram-based rival caters to more than 750 cities currently, according to analysts at Jefferies.

Expansive reach

As a natural extension of being present in more cities, Zomato is also downloaded more times from app stores as compared to Swiggy.

For instance, Zomato saw about 16 million downloads on Android, only in May 2023, which was higher than Swiggy, which saw around 11 million downloads on Android in the same month, industry insiders told Moneycontrol.

Android downloads are generally considered a good proxy to establish a trend on app downloads since over 95 percent of India’s mobile phone users are on the operating system (OS). The rest use iOS.

Higher downloads also resulted in a healthier monthly active user (MAU) base for Zomato, which had a total of around 30 million MAUs in May 2023, higher than the 24 million that Swiggy had during the same period.

Despite having lower MAUs, Swiggy had a larger base that transacts more frequently, or monthly transacting users (MTUs), when compared with Zomato, analysts’ estimates revealed.

How Swiggy and Zomato stack up against each other

"The biggest reason for higher MAUs of Zomato is that people have always used it for discovering where to go and eat. A subset of this cohort orders maybe 2 or 3 times a year. But, cumulatively such orders add up to a significant chunk of total orders," said a top former executive in the foodtech industry.

"One could say that Swiggy's decision to acquire Dineout last year was to plug this hole in its product. As we can see, that hasn't helped as yet," he added.

Dineout is a restaurant tech platform that Swiggy acquired for an undisclosed amount in May 2022 and tapped into its network of 50,000 eateries.

Act of god

The pandemic saw an initial fall, and then a spike in food delivery as customers could not step out for a meal.

Having users that transact more frequently was a healthy sign for the company, but it was also one of the primary reasons why Swiggy lost market share. Why? People worked from home instead of from the office. And a bulk of Swiggy’s high-frequency customers were office goers who ordered lunch often on the app.

With the pandemic bringing things to a standstill, Swiggy was hurt more than Zomato.

Lunches are particularly important because they account for about 35 percent of all food orders on these apps. Last year, when some lockdown restrictions were still in place, that share went below 30 percent and was even lower in 2021 and 2020, one of the analysts quoted above said.

They added that this lunch share largely returned to pre-pandemic levels in Q1CY23 (January-March 2023), which should help increase Swiggy’s market share by a few percentage points.

In fact, Swiggy’s market share had increased from 45 percent to 47 percent in this period, a person aware of the company’s progress told Moneycontrol, gaining at Zomato’s expense.

As Swiggy regains some of its loss, Zomato, with its Everyday offering of homestyle meals, is aiming to grab a larger piece of the total lunch orders.

“The pricing is such that it helps Zomato compete with office cafeterias, thereby increasing its sales during lunchtime, which is key to cracking the food delivery market,” a second analyst said.

That is still subject to Zomato Everyday taking off successfully, though.

Swiggy had tried a similar low-priced offering under Swiggy Pop but had to eventually pull the plug on it during the pandemic. It remains to be seen how Zomato Everyday performs, experts added.

Quick commerce wars

Experts also pointed out that Swiggy should have grown much faster than Zomato, especially because its losses were much higher than the BSE-listed company.

Swiggy’s losses stood at $545 million in FY23, significantly higher than Zomato’s roughly $110 million. Even then, the two giants had roughly similar revenues — Swiggy’s top line of around $900 million, compared with Zomato’s revenues of about $885 million.

However, both Prosus, and Swiggy CEO Sriharsha Majety indicated that the higher losses were primarily because of investments in scaling Instamart, Swiggy’s quick-commerce unit.

“We pioneered and built this (quick-commerce) category from the ground up, and have made disproportionate investments in Instamart, given the attractiveness of the consumer proposition and its strategic importance to us. The peak of our investments is behind us…,” Majety said in a blog in March 2023.

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

Analysts said Instamart was the category leader but because Swiggy built the unit in-house, and Zomato acquired a company, the former ended up spending a significant amount on Instamart.

“A bulk of the money Swiggy raised in its previous rounds went into building Instamart and a lot of the management bandwidth was also focused on making Instamart huge. Zomato got the same capabilities by acquiring Blinkit (earlier Grofers),” an analyst said.

Instamart is functioning smoothly and will most likely retain its leadership position for now. “Food delivery is the market where both Zomato and Swiggy will end up making more money from, not so much from quick commerce. Both companies know that, so they will constantly look to make their core business better,” an analyst said.

Recall value 

But is looking at market share an ideal metric to gauge the landscape of the food delivery market? It may not necessarily be.

“Zomato is a listed company. It is obvious that it will have a better recall and hence more users. After Swiggy’s IPO, the split will rebalance and can even tip in Swiggy’s favour. It all depends on small changes a company makes at a point in time,” a fourth analyst said.

In March last year, Swiggy picked ICICI Securities and JP Morgan for a mega domestic initial public offer (IPO), where it plans to raise around $1 billion, Moneycontrol had reported.

The analysts quoted above said loyalty of a food delivery customer isn’t to an app, but to whoever offers the cheapest price for a meal.

“Customer loyalty is unlike what we see in telecom where the cost of switching from one player to another is high and is more cumbersome which deters people from switching over,” he said.

Even analysts at JM Financial said that the food delivery market is far from being dominated by a single player.

“…we also remain conscious of the fact that India’s online food delivery market is far from turning into an absolute monopoly in the near term, as both incumbents (Zomato and Swiggy) have quite evidently prioritised profitability improvement over market share gains,” a recent note to clients said.