Startup and VC Ecosystem Updates | Issue# 6 [September 20, 2024]
What?
Swiggy has launched a new service called Cafe to deliver snacks and beverages within 15 minutes, as reported by Inc42 and YourStory. This service has initially been made available in select parts of Bengaluru. The offerings include items such as coffee, milkshakes, and protein bars from well-known brands like Blue Tokai Coffee Roasters and The Whole Truth, non-branded items like samosas, peri peri fries, noodles, sandwiches, and other snacks, such as hummus and pita bread. This marks another step in the quick commerce space, following the path of competitors like Zepto.
Past Experiments
This isn’t Swiggy’s first attempt at fast snack deliveries. In 2015, the startup partnered with a few cloud kitchens in Bengaluru to provide 15-minute snack delivery services. In early 2023, Swiggy Instamart tested a similar service across certain areas in Bengaluru under the name Instacafe. Through Instacafe, Swiggy Instamart focused on delivering pre-made food and snacks, alongside groceries, through its dark stores. However, it is interesting to note that the new Cafe feature is offered through the food delivery section of the Swiggy app, rather than through Instamart, perhaps for higher visibility.
Competition
Swiggy’s current offering – Cafe, bears resemblance to Zepto Cafe, which also blends branded and non-branded snacks and beverages (alongside groceries). Zepto Cafe, launched in Mumbai in April 2022, leverages mini cloud kitchens set up within its dark stores to offer speedy delivery.
Swiggy’s move to expand its offerings reflects increasing competition in the quick commerce space. Other players like Zomato have also dabbled in quick snack deliveries. Interestingly, Zomato’s 10-minute food delivery experiment in Gurugram, Zomato Instant, was plagued by low order volumes and failed to recover the fixed operational costs. The company ended up rebranding the vertical in 2023 and is said to be working on a new menu. Swish, a new entrant in the food delivery space, aims to disrupt the traditional experience of ordering food by offering ultra-fast 10-minute delivery across select locations in Bengaluru. The focus on convenience and speed continues to reshape the food delivery market in India.
IPO Plans
The introduction of Cafe comes as the SoftBank-banked food delivery and quick commerce major prepares for an upcoming IPO. The company aims to raise INR 5,000 Cr by issuing new shares and is looking at an IPO size of $1.4 Bn, with a target valuation of $15 Bn. This would make Swiggy the only venture-funded startup to exceed Rs 10,000 Cr in a public listing after Paytm. Swiggy’s most recent valuation was $10.7 Bn.
Performance
It is important to note that despite growth in its revenue, Swiggy remains a loss-making entity. While the startup’s revenue increased by 36% YoY to INR 11,247 Cr in FY24, the net loss decreased by 44% to INR 2350 Cr YoY. In recent times, investors have increasingly started focusing on a startup’s profitability and sustainability as the key metrics to consider before investing in them, whether its a pre- or a post-IPO investment. This is true for retails investors, early-stage investors, and VCs. Alongside Cafe, the company is piloting multiple new features, such as large order fleet and incognito mode for private orders. It remains to be seen the value the new features create in driving the food delivery major towards profitability.
Thoughts
We would definitely appreciate a quick snack before the craving dies down. Given the changing consumer expectations, users would have wanted such a service sooner than later. Starting small within a geographical area and gathering user feedback to understand what is working and what needs to improve before going for scale indeed seem to be a smart strategy. We are eager to see how the new features and offerings, such as Cafe, large order fleets, and incognito mode, strategically introduced by Swiggy in the rundown to its much-talked-about IPO, contribute towards its profitability before or soon after its market listing.
With regards to fulfillment, at this point, we are not sure of how exactly Swiggy is driving the fulfillment for Cafe’s orders. It is possible that the quick commerce major might be leveraging its strong network of dark stores (or some other form of fulfillment centers) to a certain extent to fulfill the orders. Of course, there are partnerships with brands, such as Blue Tokai Coffee Roasters and The Whole Truth. The concept of 15-minute delivery is not new, but it is fraught with logistical and sustainability challenges. Issues related to inventory management, delivery logistics, high operational costs, and the need for densely located fulfillment centers to meet the delivery promise adds operational complexity and financial burden. However, with the kind of might and resources Swiggy possesses, these problems would be easier to tackle with scale. We certainly hope that the company is able to navigate the operational challenges in the quick snack delivery space that have impacted the likes of Zomato. We would eagerly await for Cafe to be successful so that it gets to expand across other Indian cities and we can quickly order that samosa to go with the afternoon tea.
If you are interested to learn more, feel free to check out this coverage by Inc42 and this article by YourStory.
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Acronyms used in the blog that have not been defined earlier: (a) Venture Capital (VC), (b) Initial Public Offering (IPO), (c) Indian Rupee (INR), (d) Crore (Cr), (e) Billion (Bn), (f) Year-on-Year (YoY), and (g) FInancial Year (FY).