Will Swiggy's non-food bet deliver right dividends?

It has been a long 12 months in waiting. And in February, it finally came true for Swiggy. The company wanted to corner everything that could be delivered in a city: from fresh fruits to health supplements to becoming your personal courier.

Swiggy’s plans were rooted in a tenet integral to building a solid habit-forming product: acquire users through a core offering, cultivate loyalty, which then leads to higher transactions — this was exactly what Swiggy did with food, since its launch in 2014. Then, in 2017, it started working on taking the business beyond food delivery.

Enter ‘Swiggy Stores’, with a pilot in Gurgaon, a market it wanted to enter primarily due to demographic similarities to its eventual battleground: Bengaluru. With Stores, Swiggy’s initial focus was to offer daily essentials and groceries in the city.

“Swiggy Stores isn’t in the grocery segment. We’re trying to focus on the customer and their needs across the city. Grocery constitutes some part of that, but we will have other categories as well,” said a top company executive, who did not want to be named. “We’re leveraging the exact same strengths that we have in food to other use cases.”

The company plans to scale the pilot in Gurgaon to India’s top five cities by the end of the year.

It is already working towards launching new categories, including medicine delivery, fresh fruits, health supplements, pet food and flower delivery, among others, in its Stores business, and introducing customer-to-customer delivery, multiple sources told ET. The intent is to leverage its fleet of 1.25 lakh active delivery partners and technology to create repeat customer use cases.

“They have certain advantages, be it technology, their massive fleet or even their consumer base which helps in expanding to new service lines and pilot new initiatives,” said Anand Daniel, partner at Accel Partners and an early investor in Swiggy.

Grocery: next big opportunity

Making money in on-demand delivery is a tough proposition. Let alone aggregating stores and supermarkets for delivery, keeping consumer experience and margins intact isn’t easy. Since 2014, more than 400 companies have been started in the on-demand delivery space, primarily grocery. Of those, 275 aren’t around anymore, while a bulk of them are still unfunded and operating in one city, ET research shows.

 Grocery has been hailed as the next-big-category in ecommerce, attracting the largest online and even offline players to commit billions of dollars in growing the market. The optimism to crack this category largely stems from the way India’s overall retail market is shaped — food and grocery made up over 61% of India’s overall retail spends, at $540 billion in 2018, according to data from Forrester.

Currently, sales of groceries online are about $1.2 billion, leaving a lot of room for growth.

“Local commerce could be challenging as it involves a variety of fragmented orders with the sizes varying a lot unlike food orders,” said Neil Shah, partner & research director at Counterpoint Research. “Getting local kiranas on the app will be challenging initially as the margins are very thin compared to the food business. Asking for a 20% margin on the fixed MRP products will require a new approach to pricing and revenuesharing model,” he added.

The Swiggy advantage

“Our delivery costs are going to be lower than others because we’re not starting this company from the bottoms up,” said the Swiggy executive earlier cited in the article. “We also have a much better understanding of what the unique hyperlocal needs of the consumer are and grocery is one of them.”

Apart from this, the company also has a large base of users who already come to it for ordering food; the same consumers also require groceries, medicines and even sending parcels to other consumers. This presents an opportunity for the company to boost unit economics by utilising its fleet for other deliveries during the lull periods in food ordering. “It’s a happy coincidence that consumers are not thinking about food at the same time they’re thinking about groceries,” added the Swiggy executive.

Yet, there are also challenges. The company will need to figure out the in-app experience, stock fill rates, training delivery fleet for a new use case, regulatory challenges in certain categories like pharma, and the unsaid — burning cash on customer acquisition. Some of the competition that Swiggy will go up against includes topfunded startups and giants including Flipkart, Amazon, Bigbasket, Grofers, Google-backed Dunzo, Spencer’s, Spar and Godrej Nature’s Basket.

“Swiggy does have the basics in place, the biggest being it’s a trusted brand for food delivery, which is more time and experience critical than grocery. This good brand perception will have a positive rub-off effect,” Yugal Joshi of consulting firm Everest Group told ET.

Global cues

Swiggy’s strategy mirrors that of its investor and China’s largest food-delivery network, Meituan-Dianping. The company which is known for being an “everything app” now also offers deliveries and services across a host of other categories, including beauty salon, payments and ride-hailing, even as food remains its highest-frequency delivery category.

Earlier this week, Meituan-Dianping said its fourth-quarter operating loss more than doubled owing to increased costs in new business lines, even as revenue grew 89%.

In fact, food-delivery players globally have been diversifying into other categories as a strategy to optimise fleet cost. While Uber was among the first ones to diversify into food through UbetEats, others like DoorDash signed a pact with Walmart to provide grocery delivery services to the retailer, and Alibaba-backed Ele.me started offering diversified delivery offerings, with food being the main driver.

“This is needed to improve the economics of last-mile logistics,” said Kartik Hosanagar, professor of technology & digital business at the Wharton School. “Having built a last-mile network, they want to carry more items in a single delivery route.”

Experts say, the next logical step for Swiggy will be to offer on-demand delivery to retailers (a B2B service) and later to leverage this merchant base to sell cloud-based ERP systems. “We will launch gradually. I don’t think we will bite off more than we can chew. While we have the ambition, and have the innovation spirit, we will gradually keep expanding,” said the Swiggy executive.

Source:-https://retail.economictimes.indiatimes.com/news/food-entertainment/food-services/will-swiggys-non-food-bet-deliver-right-dividends/68421409