Exclusive: Welcome the new Unicorn of India

While sources confirm foodtech startup Swiggy is raising $200 million from DST Global, the company remains tightlipped. The Indian foodtech industry is believed to touch $2.5 billion, and competitors Swiggy and Zomato are eyeing a big chunk of the pie. 

This year seems to belong to foodtech. In March, Swiggy raised $100 million from Naspers, while Zomato raised $200 million from Ant Financials in February. Word on the street is that Swiggy is again raising funds, this time $200 million from DST Global. 

When asked about the latest fund raising, Swiggy refused to comment, but three sources in the know of the development confirmed it. 

With the fund raises earlier this year, Delhi-based Zomato marked its entry into the unicorn club, while Swiggy stood at the doorstep. The latest round by the latter takes it in through the door with its valuation believed to be $1.3 billion. 

“With both Swiggy and Zomato joining the billion-dollar club, both will want to conquer the market as fast as they can. Swiggy currently is looking to conquer the market quicker than ever before, and that is why it has been acquiring companies, looking at different market segments to break into, and at the same time build a healthy business model,” says an investor on condition of anonymity. 

To fuel its ambitions to conquer the market, Swiggy has kept busy this year, raising big monies, launching Swiggy Access and Swiggy POP, as well as opening up in newer geographies, and even acquiring Bengaluru-based cloud-restaurant 48East. 

Grabbing a large pie of the market 

The online food delivery business is a battlefield not only in India, but internationally as well. In the US, uberEats has been posing stiff competition for market leader Grubhub. The food delivery market in the US is believed to touch $76 billion by 2022, according to investment firm Cowen and Company. GrubHub currently averages close to 400,000 orders per day, and holds 48.6 percent of US market share. 

In China, there are two different types of players. The first is group-buying startups like Meituan/Dianping, who have their own delivery team. The second includes companies like Baidu (Baidu Waimai) and Alibaba (Koubei) where ecommerce giants have ventured into the space. Alibaba recently acquired food company ele.me.

Interestingly, Alibaba’s affiliate Ant Financial is an investor in Swiggy’s competition - Zomato. While one could argue that this means Alibaba is perhaps gauging the Indian market, experts believe it is too early to comment. 

“It is no doubt that the market is big in India. But it also is a tough one to crack. While people in India eat out two to three times in a week, in Thailand the number is at eight to nine times. But now the dynamics are changing. People tend to order in more often,” says another investor.

What Swiggy has got right is its operations, and the company ensured it had total control over the logistics. “It is a strong execution game. While the technology is strong, in India it needs to be solid mix of both online and offline play, managed seamlessly,” says another investor.  

Sriharsha Majety, Co-founder and CEO, Swiggy, began with one premise, “We aim to change the way India eats.” 

Explaining this, Sriharsha had earlier said, 

“We do our basic service really well. We are boringly predictable. Our hope is there should be no touch points between a customer and us beyond them placing the order on the app and us handing over the food to them. It is a challenging business and we were able to get the basic service right through a mix of technology and operational excellence. One of the big contributors was having our own fleet. We had five riders when we started; we have crossed 20,000 riders now.”

When Swiggy started operations in August 2014, its main proposition was to ensure it delivered food not only from high-end restaurants, but also pocket-friendly joints, and everything in between. 

A mixed play 

Sanjay Anandaram, noted early stage investor and startup mentor, believes online food businesses today are essentially focused on delivery, online kitchens, and a combination of both. Sanjay says that while online kitchen businesses will raise money and continue to grow, the real battle will be between Zomato and Swiggy. 

Swiggy, however, has one big factor in its favour - the first mover’s advantage.

“Swiggy has taken a solid position in the mind-space of the urban Indian populace. I know people who look at restaurants and menu on one platform, but choose to order on Swiggy out of sheer habit. And that can be established only out of consistency,” says another mentor. 

Restaurant businesses typically involve high investments in space and equipment. Additionally, operating expenses are also high and the only way to make money is to ensure a growing number of orders — something that Swiggy brings in. 

Apart from restaurant chains and bigger players, Swiggy today also works with small restaurant owners who form a big part of the unorganised restaurant business. For many small restaurants, Swiggy is the primary route through which orders flow in. Said one such restaurant owner, 

“As order volumes through Swiggy keep increasing, restaurants factor in that demand and work on adding to their daily (raw material) procurements.”

Currently, Swiggy’s revenue per order – at 30 percent currently - is a blend of three parts, the commission from restaurants, delivery fee charged from consumers, and discretionary advertising revenues. 

For 2016-17, the company posted a revenue of Rs 133.1 crore and a loss of Rs 205.2 crore. In the previous year, the Bengaluru-based foodtech startup had posted a revenue of Rs 23.6 crore and a loss of Rs 137.2 crore. The overall foodtech market in India will be worth $2.5 billion in 2021 as against $700 million at present according to research firm RedSeer. 

Now with Swiggy getting a valuation of $1.3 billion, it will be interesting to see how it takes a bite of the foodtech market and pushes forward towards a faster growth.