Online food delivery firm Swiggy will invest $700 million in its express grocery delivery business Instamart, the Softbank-backed firm has said, as it seeks to double down on a category that has grown at a scorching pace since it was launched in the middle of the pandemic last year.
Swiggy’s move to commit a huge investment to Instamart also comes at a time when there is heightened competition in the so-called quick commerce space in India- where startups are promising delivery of essentials in under an hour.
From Zomato-backed Grofers to Dunzo to Amazon to Flipkart to Zepto to Tata-owned BigBasket to Reliance-owned JioMart – everyone is vying for a larger pie of this market, as more Indians shop for daily essentials online.
Swiggy said it is currently clocking more than 1 million orders per week and will start 15-minute deliveries to top cities by January 2022. Launched in Gurugram and Bengaluru in 2020, Instamart now serves customers in 18 cities.
“The growth and the large market size have taken us by surprise. The retention numbers are also looking incredibly good,” Sriharsha Majety, founder and CEO of Swiggy, told Moneycontrol in an interview.
Majety estimates that at the current growth trajectory, Instamart is set to reach an annualised GMV (gross merchandise value) run rate of USD 1 billion in the next three quarters.
“With our food delivery business trending at a USD 3 billion annualised GMV run rate, and Instamart’s super-charged growth, we’re very excited about our convenience mission,” he said.
With more offices opening up and vaccination gathering pace, the food delivery business has also seen a bounce back. “The average monthly user spend has gone up by 50 percent,” he said.
While Majety did not specify a timeline, he said it is highly likely that Instamart would surpass its core food delivery business in the future, underscoring the potential it has.
Instamart offers an assortment of products across categories like fresh fruits and vegetables, daily bread and eggs, cooking essentials, beverages, instant food and munchies, personal and baby care, home and cleaning.
This is Swiggy’s second attempt to crack the online grocery delivery space. It had launched and shut Swiggy Stores earlier, which operated on a marketplace model. But Instamart operates via the dark stores model. Dark stores typically resemble conventional supermarkets, except that they are open to online orders only.
The $700 million will be used to increase awareness, distribution and technology investments. While Swiggy currently has over 150 dark stores, it plans to add 100 more in the next three months.
This would come from the $1.25 billion that it raised a few months ago and not the new round that it is reportedly raising, at a valuation of $10 billion. Majety did not comment on the fund raise. It also doesn’t have immediate plans for an IPO.
Swiggy’s strategy for Instamart stands in stark contrast to arch-rival Zomato, which started and shut its grocery delivery service in months. It is now playing in this space, via Grofers, in which it holds a 10 percent stake and is reportedly in talks to commit an additional $500 million.
Instamart’s rivals include Grofers, which claims 1.25 lakh orders on a daily basis. Younger rival Zepto recently raised $60 million in its first round of funding and is expected to be delivering around 10,000 per day.
Earlier this year, Dunzo, which has also forayed into instant grocery delivery, said it planned to set up 300 micro-fulfilment centres to deliver groceries in under 19 minutes.
Even as all these companies agree that customers need groceries delivered instantly, they are divided on appropriate timing. While Grofers says it will deliver in 10 minutes, Zepto claims its medium delivery time is 8.47 minutes. Swiggy has chosen a 15-minute spot, while Dunzo said the under 19-minutes promise is good for customers.
BigBasket recently said it will never promise a 10-minute delivery, adding that 45 minutes is an ideal time where a company can make money while delivering products to consumers. Even the customers are comfortable receiving orders in this time span, according to the company.
“We did not decide on day 1 that we will deliver in 15 minutes. It was a natural progression as we added more stores and increased our network,” Majety said.
IPO-bound ride-hailing firm Ola has also taken a plunge for the second time in the grocery sector with the launch of Ola Store. It has been delivering around 1,000 orders per day from around 15 dark stores across Mumbai and Bangalore.
While investors and companies are riding the new quick-commerce wave, the jury is still out on whether people really need groceries and staples in 10 minutes. Even the ability to make money while delivering goods at a breakneck speed is a big question mark.
But Majety said they have always been conscious of unit economics while building out the venture. “There will be many platforms catering to different user segments. For example, we have Instamart and our subscription service, Supr,” he said.
Apart from its core food delivery services, Swiggy has focussed on using its exhaustive logistics network to offer other services. Apart from food delivery and grocery delivery, it also has Swiggy Genie, an instant pick-up and drop service to deliver packages.
Global food delivery firms such as Doordash, Deliveroo, Uber Eats and Just Eat Takeaway have also ventured into instant grocery delivery, due to the large market size and high growth opportunity.
Again, this is a strategy that is different from Zomato, whose founder and CEO Deepinder Goyal recently said that its core food-related businesses – food ordering and delivery, dining-out, and hyperpure (B2B supplies for restaurants) – will remain the key value drivers for Zomato for the next few years. It is instead taking an investment route to build out categories.
When asked about his approach on building vs buying, Majety said, “We do have a builder bias, we are building a lot more than buying. We couldn’t have bought an Instamart-like company when we started because it was a category creator.”
At a time when the work-life challenges and earnings of delivery partners have become a point of debate in the industry, Swiggy says it has been having constant dialogues with policymakers and riders.
“We are fully mindful of our responsibilities. Their earnings as we mentioned are now at an all-time high, meaningfully higher than last year but it is not just the earnings, our responsibility extends beyond earnings and improving their overall conditions on the job. Can we make it easier? What are the things that we can do,” said Majety, adding that Swiggy was constantly working on these issues.
Even the government is mulling bringing the gig workers under new labour laws in India.