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.
This story is from the May 01, 2022 edition of Business Today.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 8,500+ magazines and newspapers.
Already a subscriber ? Sign In
This story is from the May 01, 2022 edition of Business Today.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 8,500+ magazines and newspapers.
Already a subscriber? Sign In
Leapfrogging Into The Future
Gen AI is the future. In India, this revolutionary technology has already penetrated deep into the country's banking sector
The Visionary
In a career spanning nearly four decades, Uday Kotak, a firstgeneration entrepreneur, has not only created a bank of size but also built an institution, which offers a wide range of financial services, from asset management and insurance to securities
Is The Tie Dead?
Maybe not. But it is no longer de facto office wear and is slowly being reduced to something to be worn only on special occasions
"Bring in experts to understand customers"
Qualcomm-backed ideaForge Technology is a Mumbai-based drone manufacturer
SHAKING IT UP
AMERICAN PHARMA MAJOR ELI LILLY SEES INDIA AS ITS LAUNCHPAD FOR A NEW GROWTH TRAJECTORY, USING ITS NEW DRUGS FOR DIABETES AND OBESITY AS THE FUEL. WILL THIS STRATEGIC PIVOT WORK?
"Besides China, no one can match the scale that India offers"
Romal Shetty, CEO of Deloitte South Asia, says innovations coming out of India are being replicated globally, and the country holds great strategic value for the Big 4 firm
PICKING THE WINNERS
The methodology used for the Business Today-KPMG Best Banks and NBFCs Survey 2022-23
THE SMALL FIRM'S BEST FRIEND
Lendingkart, a fintech that posted its highest-ever PAT in FY23, is making credit available to MSMEs in India's far-flung areas
HELPING HAND
From helping financial institutions with e-verifications to aiding them in fraud detection and prevention, Perfios is bridging the gap between data and insights
THE OMNIPRESENT PLATFORM
Fintech major Razorpay has undergone many diversifications. Yet, its core premise remains the same: make the movement of money simpler