Swiggy Vs Zomato

The Foodtech Duo Take Two Different Paths To The Same Destination, But More Often Than Not, Find Themselves Crossing Each Other. And Now, They Are Squaring Off In Realms Beyond Their Comfort Zone Of Food Delivery. What Will It Take To Win?

- Binu Paul

FOR INDIA'S ONLINE food delivery giants Swiggy and Zomato, the Covid-19 lockdowns were the ultimate moment of truth. They presented a growth opportunity like never before. People were locked in their homes for months, discretionary spending on food services was at its highest, existing restaurants flocked to their platforms en masse, and new cloud kitchens mushroomed. Consequently, average order values (AOVs) peaked and order numbers shot up to record levels. Yet, improvement in operating margins remained elusive and the writing on the wall became glaringly clear—there isn't much money to be made on the pure-play food delivery business in India. But why is it so?

In food delivery, profitability means improving AOV and optimising delivery cost. The average order value of $5 for food delivery in India is approximately six times lower than that of peers in the US and Europe, according to a report by global stock investing platform Stockal. Even with one of the highest commission rates in the world that go as high as 30 per cent of the order value, Indian food delivery firms end up losing money on a majority of orders due to high delivery costs and discounts.

The biggest headache: sub-optimal usage of riders. Food delivery is always a two-peak business lunch peak and dinner peak. The low utilisation of riders in the mornings and evenings tear a massive hole through unit-level profitability. Swiggy and Zomato operate a marketplace model involving customers, restaurants, and riders, and it becomes very tough to incentivise all three as they compete against each other. Discounts for customers and restaurants, as well as incentives for riders, lead to massive cash burn.