Hungry Indians are ordering in like crazy, rekindling investors’ appetite for the country’s food-tech sector.
On June 21 (Thursday), Swiggy announced that it had raised $210 million in fresh funding from new and existing investors, including Naspers, DST Global, Meituan-Dianping, and Coatue Management. The deal turns Swiggy into India’s 11th unicorn—a privately held startup that’s valued at over $1 billion.
The Bengaluru-based company intends to use the funds to ramp up its supply-chain network, expand to new markets, and double its technology headcount, it said in a statement.
But chew on this for a minute: Just two years ago, the food-tech industry was in the doldrums, haemorrhaging money, and rife with layoffs, restructuring, and scandals.
Founded in 2014 by Sriharsha Majety, Nandan Reddy, and Rahul Jaimini, Swiggy is among the fastest Indian startups to grow into a unicorn.
“What we must appreciate about Swiggy is the laser-sharp focus on solving one problem,” said Sanchit Vir Gogia, chief analyst and CEO at Greyhound Research. “(There’s) competition, there’s so much of noise from the market, business models are changing, (but) despite all that, (they are) proving true to what (they) started for.”
Unlike other delivery companies, Swiggy owns its delivery fleet of 40,000 executives that work with over 35,000 restaurant partners across 15 Indian cities. This strategy, which allows Swiggy to better control its customer experience, has played a role in its success, according to analysts. In fact, in 2015 and 2016, when its peers were downsizing, the company expanded its operations.
Swiggy has also been constantly trying to innovate, analysts note. Earlier this year, it rolled out Swiggy POP, a service that curates and delivers quick single-serve meals. It also launched Swiggy Scheduled, a feature that lets customers pre-order meals.
Alongside, the company also stepped up its advertising and marketing campaigns to widen its customer base. “Towards the IPL season in particular, there’s been a huge jump in orders. They’re trying to expand across city tiers and people are getting more and more used to the platform,” said Vaibhav Arora of RedSeer Management Consulting.
Having gotten this far, Swiggy now needs to ensure that it doesn’t lose focus—particularly with new investors coming on board. “Too many cooks spoil the broth,” Gogia said. “It is easy to get derailed from here.”
In 2015, when India’s startup ecosystem was on a high, industry observers had predicted that food-tech would be one of its stars. Startups in this segment attracted a flood of funds. “It was like ‘hey, they invested in a food-tech company; we don’t have one in our portfolio, we must get one in our portfolio too’,” Pankaj Jain, former member of startup accelerator 500 Startups, had told Quartz back then in November 2015.
But the bubble burst quickly.
Companies began to downsize. Zomato, one of the industry’s oldest and biggest players, fired 300 employees—around 10% of its workforce. Smaller startups such as Dazo, Spoonjoy, and Eatlo were either acquired by larger players or simply shut shop. Morale hit rock-bottom.
Angry emails from Zomato CEO Deepinder Goyal about the company’s unsatisfactory performance were leaked in November 2015. Around the same time, Mumbai-based food-delivery startup TinyOwl, which has since shuttered, faced employees’ wrath when co-founder Gaurav Choudhary was held hostage after a round of restructuring. Swiggy had its share of troubles, too. In 2017, an anonymous blog post by a whistleblower accused it of indulging in unfair trade practices.
Meanwhile, funding was down to a trickle by 2016 when the sector received less than $80 million compared to the $500 million it got the year before.
Then came the turnaround in 2017, as Indians began ordering food online more often than before.
“The overall food-tech industry is growing very fast. Unlike what it was earlier, the unit economics have started to make sense,” Arora said. “This is an industry where customers are willing to pay.”
The restructuring and consolidation have helped clean the sector up, attracting new deep-pocketed entrants like UberEats, a food-delivery portal owned by ride-hailing company Uber, and Google. Existing players, too, have sharpened their focus on the food-delivery market. ”Zomato, which was looking at everything on the food side… they’ve also started pushing the delivery side of things very aggressively right now,” Arora said.
But it is unlikely that any more will join the party now, analysts say. “There’s only room for as many players. Two to three is what you can have,” Gogia said.
Instead, expect a tussle between the big guns, particularly with Swiggy gaining more firepower.
“Power is being concentrated with a few players, the way we see in retail, where you largely have a duopoly. I think these guys will expand, Zomato is pretty much pan-India,” said Yugal Joshi, vice-president of Texas-based consulting and research firm Everest Group. “I don’t think any regional brands will come up now.”