The sunny side appears up again in the Indian food tech sector.
After a year of layoffs, downsizing, and even shuttering of businesses, food tech startups are back to receiving funding and planning expansions. On May 19, FoodPanda’s parent company Delivery Hero raised $431.45 million. On May 30, Bengaluru-based Swiggy raised $80 million from South African firm Naspers in a Series-E round.
With this, the amount that Swiggy has raised since its launch in 2014 has touched $155 million, while its larger rival Zomato has raised $243 million over nine years, according to data on Crunchbase.
So how did Swiggy swing this?
It is clichéd, but true. They’ve got the basics right and are able to execute it well. “First and foremost, I think starting from the ease of use…” says Arvind Singhal, chairman of management consulting firm Technopak. On fundamental services such as user experience, curation of merchants or restaurants, and logistics policies like Swiggy Assured (where the company promises to return cash for delayed deliveries), the company has scored over its peers, Singhal believes.
Unlike others in the industry, Swiggy has its own delivery fleet. Controlling the customer service and delivery experience by having its own fleet would make the business more expensive, but startups that do this are also more likely to succeed, industry experts say.
“I have never quite bought into the food delivery business model, especially in India. Most restaurants in Tier 1 cities will deliver (within a reasonable radius) and usually for free. That being said, having a really strong understanding of logistics and managing centralised kitchens can give a company like Swiggy a huge edge,” Pankaj Jain, an advisor to startups and funds, and a former member of startup accelerator 500 Startups, said.
Investors seem to agree.
Naspers said it was attracted to the way the company was changing India’s online food ordering and delivery sector. “Their ability to create a sustainable business, and earning consumer trust through a reliable first-party delivery technology, positions them well for success,” Ashutosh Sharma, head of investments in India at Naspers, said in a statement. Sharma is now a member on Swiggy’s board of directors.
Swiggy intends to utilise its funds to introduce new products and services. It also plans to double its 100-member technology team and invest in developing technologies like machine learning and data sciences. Swiggy today has over 1,000 employees.
Analysts expect Swiggy to also use some of this money to develop its cloud kitchen platform, an experiment launched in January this year. Cloud kitchens are places where existing restaurant brands prepare food meant only for delivery and not dine-in. This helps restaurants reach customers even in places where they don’t have a physical presence.
Swiggy and Zomato, the two large players in the food tech space today, have both experimented with cloud kitchens. Just as Swiggy standardised its delivery experience by having its own fleet, the cloud kitchen concept will help it standardise food and taste, experts believe.
“Internet kitchens recently have been able to garner a good amount of potential in this market probably after the emergence and acceptance of players like FreshMenu,” Rohan Agarwal, food tech expert at RedSeer Management Consulting, said. The scalability of the cloud kitchen model, however, is tougher because of the capital expenditure involved and in aligning with local cuisines and preferences, according to Agarwal.
In a difficult market, Swiggy has managed to attract funding, win investor confidence, and, in a way, reassure the sector that there is still meat in the business.
What they now need to do is to make money, experts say. In 2016, Swiggy’s losses increased to Rs137.18 crore during the year, from losses of Rs2.12 crore in 2015, according to the Mint newspaper, although its revenues grew to Rs23.59 crore from Rs11.59 lakh in 2015. “This is a business with very low margins and, though Swiggy has broken out into the next level compared to many others, they will continuously need to ask if their business model is sustainable,” Jain said.