Instamart tests Swiggy's appetite for biz growth amid rising losses

With its rapid cash burn rate, early investors are questioning the food delivery platform's venture into quick commerce

With losses mounting, early investors at food aggregator platform Swiggy, the eight-year-old food ordering and delivery platform, have started to question if the founders’ focus on its quick commerce play Instamart, which it started in 2020, needs to be revisited.

Sources in the know said that Sriharsha Majety, co-founder and CEO, will have to take a call within one-two months on whether he wants to continue to focus on burning cash behind Instamart.

In the first week of January, Swiggy, which is unlisted, announced that its losses for FY22 widened 2.24 times to Rs 3,628.9 crore in FY22 from Rs 1,616.9 crore in FY21. This came even as Swiggy raked in considerably higher revenue than its 13-year-old competitor Zomato in FY22 at Rs 5,704.9 crore, a little over two-fold jump from the previous financial year, which saw the firm bring in Rs 2,546.9 crore.

Sources in the know confirm that the biggest cash burn rate — typically defined as the rate at which a company is spending its capital to finance overheads before generating cash flows — for the company is Instamart. The company is burning around $40 million (about Rs 325 crore) on a monthly basis, and almost half of this is going towards Instamart. “Almost $25-26 million is going after Instamart. The question is that although Instamart has a huge potential and leads the space, with almost 35 per cent market share, should Swiggy be focused on it the same way in the current scenario,” said a source.

In the regulatory filings Swiggy mentioned that, “Instamart (currently live in 27 cities) has a spread of over 5000 stock keeping units or SKUs, 500 plus leading FMCG and direct to consumer or D2C brands, continues to grow within existing cities and expand into newer cities, has high availability and very low cancellations / complaints, while driving economic efficiency to our bottom line.”

“What is perhaps making Majety bet on Instamart is the fact that Swiggy is sitting on a cash pool of $1.5 billion. But how or when this uncertainty ends no one knows, hence conserving cash should be the priority,” said another source. 

In reply to a detailed questionnaire that Business Standard sent to Swiggy, a Swiggy spokesperson said: “In FY21-22, we remained focused on delivering exceptional value, growing our food delivery business, investing in developing the quick commerce category with Swiggy Instamart, and improving our operational efficiencies as we hit higher scale across all our businesses. This has resulted in an operating revenue increase of 124 per cent.”  

Despite having a higher revenue than competitor Zomato, Swiggy has not been able to bring down its losses in the same way as Zomato. Compared to Swiggy’s FY22 revenue of Rs 5,704.9 crore, Zomato reported a revenue of Rs 4,192 crore for the same period. But Zomato’s losses grew 1.5 times during the same period, from Rs 816 crore in FY21 to Rs 1,222 crore in FY22.

The Bangalore-based decacorn (the term for a start-up valued at $10 billion) also spent much more with Swiggy’s expenses coming in at Rs 9,748.7 crore in FY22, compared to Rs 4,292.8 crore a year ago. The firm’s Gurugram-based rival shelled out Rs 6,206 crore as expenses during the same period, up from Rs 2,609 crore in FY21.

It is, however, important to note that Zomato’s losses for FY22 do not include burn figures brought about by the firm’s Blinkit acquisition, which took place in June 2022. Despite the spend on Blinkit, Zomato managed to narrow its losses in Q2 FY23 to Rs 251 crore, from Rs 430 crore in the same period the previous financial year.

“Some of the investors are of the view that if Swiggy does scale back on Instamart, its burn-rate can come down to Zomato’s level. 
 

No less concerning for Swiggy is that Zomato appears to be edging ahead in market share. According to a report by Jefferies, Zomato outperformed Swiggy in gross merchandise value (GMV), both in terms of food delivery and quick commerce, in the first half of calendar year 2022. The report added that Swiggy’s losses were much higher at over $315 million during the first half of CY22. “We note that this is significantly higher than Zomato’s loss of <$50 million in standalone during the same period, with Blinkit loss estimated at <$120 million (aggregate loss: <$170 million).”

Prosus, the report says, pegs Swiggy’s 1HCY22 food delivery GMV at $1.3 billion — this compares with $1.6 billion for Zomato during the same period. 

Swiggy grew 40 per cent, while Zomato’s growth was more than 55 per cent during this period. 

But Swiggy does not seem to be unduly worried by the comparisons. “Over the past two quarters, we have steadily gained market share in the food delivery business with our razor-sharp execution. We continue to double down on our efforts to get big and get fit, bringing more value to users through industry-defining programs such as Swiggy One,” the Swiggy spokesperson added.

What is aiding Zomato to reduce its losses other than focusing on efficiencies and reducing cost is the synergies that Blinkit is bringing to Hyperpure, its business-to-business restaurant supply business started in 2018. The integration in backend and warehousing has resulted in major savings with Blinkit closing several warehouses and dark stores.  

“Quick commerce is turning out to be another opportunity for Hyperpure. It has begun supplying to the sellers on Blinkit’s marketplace following our acquisition of Blinkit. This has the potential to further accelerate revenue growth for Hyperpure going forward,” said Deepinder Goyal during its Q2 FY23 results.

Swiggy’s Majety, therefore, has some tough decisions to take.