India's Consumers are Changing the Way They Buy.
The gridlocked streets of India's big cities are not closed to everything. Tiny scooters loaded with packages slip past cars, jump traffic lights, and bounce over pavements that exist. Goods range from a tub of ice cream or a handful of pomegranate seeds to a coffee pot or even an iPhone. These two-wheeled delivery services have become popular over the past four years, often promising to deliver items in 10 minutes in cities where it takes that long to cross a busy street.
Three companies dominate this industry: Zomato, Zepto, and Swiggy. On September 26, they announced an initial public offering that could value the company at $15 billion. Although this exceeds the $12 billion valuation given to Zomato when it went public in 2021, Swiggy still has some catching up to do. Today, Zomato's valuation is $28 billion and it is now making money, earning a net profit of $73 million over the past four quarters. In the fiscal year ending March, Swiggy made a loss of $285 million, but this is an improvement from the previous year's loss of $520 million.
Investors may be seduced by Swiggy's growth to date. In three years, revenues have nearly doubled to $1.4 billion, as the number of users has increased from 35 to 47. The number of riders, who pay a mere 69 cents per order, has nearly doubled since 2022 to 457,000. Each rider delivers an average of 463 packages per month. Since 2018, four warehouses have been expanded to 50, and Swiggy has created nearly 540 "dark stores", which exist only for fulfilling online orders and are packed with common items to ensure fast delivery.
The convenience of a doorstep delivery service is not limited to Indians living in small homes, where quick deliveries save space for storage. Instead of reaching into a cabinet, people can now use an app. The number of restaurants that order through Swiggy has increased from 129,000 in 2022 to 224,000 by the end of June. This opportunity to meet the growing demand for fast delivery has attracted competitors to Swiggy, including Amazon and Flipkart. Restaurants prefer to avoid Swiggy's 18% commission on meals.
Competition is not Swiggy's only concern. As its prospectus notes, fast delivery depends on the hygiene and quality of the companies whose deliveries it carries, but over which it has little control. Swiggy also faces a mountain of legal claims, ranging from lack of a proper business license and non-payment of goods-and-services tax to not making proper pension contributions and experiencing delays in refund processing. It even faces investigation by the competition authorities. However, such obstacles in India are common as potholes that Swiggy riders have to avoid, and none seem to worry investors. The more important thing is that Indians obviously and increasingly prefer a trip to the front door over a trip to shops.
03/10/2024
Three companies dominate this industry: Zomato, Zepto, and Swiggy. On September 26, they announced an initial public offering that could value the company at $15 billion. Although this exceeds the $12 billion valuation given to Zomato when it went public in 2021, Swiggy still has some catching up to do. Today, Zomato's valuation is $28 billion and it is now making money, earning a net profit of $73 million over the past four quarters. In the fiscal year ending March, Swiggy made a loss of $285 million, but this is an improvement from the previous year's loss of $520 million.
Investors may be seduced by Swiggy's growth to date. In three years, revenues have nearly doubled to $1.4 billion, as the number of users has increased from 35 to 47. The number of riders, who pay a mere 69 cents per order, has nearly doubled since 2022 to 457,000. Each rider delivers an average of 463 packages per month. Since 2018, four warehouses have been expanded to 50, and Swiggy has created nearly 540 "dark stores", which exist only for fulfilling online orders and are packed with common items to ensure fast delivery.
The convenience of a doorstep delivery service is not limited to Indians living in small homes, where quick deliveries save space for storage. Instead of reaching into a cabinet, people can now use an app. The number of restaurants that order through Swiggy has increased from 129,000 in 2022 to 224,000 by the end of June. This opportunity to meet the growing demand for fast delivery has attracted competitors to Swiggy, including Amazon and Flipkart. Restaurants prefer to avoid Swiggy's 18% commission on meals.
Competition is not Swiggy's only concern. As its prospectus notes, fast delivery depends on the hygiene and quality of the companies whose deliveries it carries, but over which it has little control. Swiggy also faces a mountain of legal claims, ranging from lack of a proper business license and non-payment of goods-and-services tax to not making proper pension contributions and experiencing delays in refund processing. It even faces investigation by the competition authorities. However, such obstacles in India are common as potholes that Swiggy riders have to avoid, and none seem to worry investors. The more important thing is that Indians obviously and increasingly prefer a trip to the front door over a trip to shops.
03/10/2024