Can Swiggy and Zomato ever be profitable?
I have several doubts about the business model of Swiggy and Zomato. These companies make an average loss of about $40 million every month and they must keep raising money to survive. The only news I hear about these companies is that they raised X million dollars from investors and are valued at Y billion dollars.
All people I know order food from these apps because of the convenience, speed of delivery and because they offered discounts.
For Zomato and Swiggy to make money they need to charge the premium to the user. Lets say that I order a dish worth Rs. 100. The food delivery app now has to pay to the delivery partner, fuel costs etc. So how can these companies ever make profit?Posted in: #Startups & Business
Okay, so there are several ways Swiggy can actually make money, and be profitable. I think the main focus of both Swiggy and Zomato is not to become profitable, but just eat up as much market share it can from their rivals. It's true that both these companies are losing several millions of dollars each month.
It's essential to understand that these companies are essentially the 'logistics' companies that just happen to serve to the food delivery segment. I think they can do some of the following things to turn profitable and have positive cashflow.
- Increased Commissions: The standard commission charged to the restaurants is about ~20% of the order value. Given the margins in the food business ( prove me if I'm wrong ) I think they can easily go up to 30% of the total order value and still keep the restaurant owners happy
- Delivery Fees: As long as people love ordering food online, Swiggy and Zomato can ask people to pay the delivery charges. I think people won't mind paying Rs. 20-50 extra for hot food delivered within time.
- Advertising: Swiggy and Zomato have several channels for advertising: The app itself, the T-shirts of the delivery partners, their motorcycles, the food delivery boxes, the packaging of the food items and even the bills sent to the customer. Everything can be used as an advertising channel to make money. I'm sure we'll see offers / promotions along with our ordered food items in coming months.
- Premium Listings: If you are ordering Ice-Creme, then restaurants may fight to be at the top of the list that appears on your app. If you are ordering Vanilla - then restaurants may pay some fee to boost their listing in the app. Swiggy and Zomato can charge a premium to the restaurants to feature them in the app.
- White Label Delivery: This perhaps would be kind of like 'OYO'. Swiggy could partner with less-famous restaurants and list itself as a Swiggy or Zomato restaurant. With this, it will have full control over the pricing of the items. I'm not sure if these companies will go this way - because then the onus of controlling food quality goes on them. But still, it'll be a great way to earn profits.
- Surge Pricing and Night Deliveries: Surge pricing on special occasions like a popular cricket match OR some event like New Year; companies charge a LOT extra to the consumers. Similarly, the companies could charge extra for delivering food after 11 PM.
One more way Zomato and Swiggy could generate profits and make some good money is by offering DUNZO like services. Right now, these companies lose money when the delivery partners are waiting for the orders.
These delivery partners could be assigned hyper-local delivery tasks to deliver grocery, stationery and other stuff when they do not have an order lined up. I'm not sure how exactly will this work out.
But yes, there are ways Swiggy and Zomato can actually generate profits. I hope this helps!
Update: Okay, we've an interesting update. According to report in Economic Times, in the recent times, orders of Swiggy and Zomato have gone down by ~6% as they increased the delivery prices and also increased the fees for their premium memberships (Swiggy Super and Zomato Gold).
The report also mentions that both Swiggy and Zomato are now experiencing slowdown in growth. While the markets are going up; the rate of growth has come down to lowest in last five years. I think food delivery apps will now have to rely on boosted listings and advertising to really turn profitable. Let's see how it works out.
Adding to the above, I recently read a business blog related to Swiggy. Swiggy just launched 'Swiggy Access', a central kitchen based facility that houses kitchens of different restaurants including Swiggy's private labels. This cloud kitchen model will help restaurants to set up kitchens in location even where they are not present.
Currently, In markets where it is launched(Mumbai, Bangalore, Kolkata, Delhi, Hyderabad), about 8-25% order volumes are coming via Access kitchens. The restaurants on Access have to pay higher commissions than the existing average commissions.
As @kaustubh said, advertising is something that can be a game-changer for their business plan. They have many advertisable platforms.