Introduction
Swiggy, one of India’s leading food delivery platforms, is gearing up for an IPO set to make headlines with a staggering valuation of ₹11,664 crores. This momentous event has garnered the attention of investors, particularly due to the impressive growth trajectory of its competitor, Zomato, which has seen a remarkable 120% increase in stock price over the past year. In this blog post, we will dive deep into Swiggy’s business model, its competitive landscape, financials, and the risks and opportunities surrounding its IPO.
Understanding Swiggy’s Business Model
At first glance, Swiggy and Zomato may appear to operate on similar business models, but they have distinct differences that set them apart. Swiggy functions as a super app, employing a multi-tenant system, whereas Zomato and its subsidiaries, such as Blinkit and District, operate as standalone applications. This fundamental difference shapes their respective strategies and customer engagement.
Super App vs. Specialized Apps
Swiggy’s model can be likened to a shopping mall housing various stores—food delivery, groceries, and more—under one roof. This structure allows Swiggy to share infrastructure, such as payment systems and user data, which enhances efficiency and scalability. For instance, a user ordering food might also be tempted to purchase groceries from Instamart, leveraging the existing user base to cross-sell services.
In contrast, Zomato’s approach involves multiple applications that each require independent marketing efforts, leading to higher customer acquisition costs. Currently, Swiggy’s customer acquisition cost (CAC) stands at approximately ₹400-500, while Zomato’s hovers around ₹500-600.
Advantages of Swiggy’s Model
Swiggy’s super app model offers several advantages:
Reduced Customer Acquisition Costs: With all services integrated into one app, acquiring a user on one platform can easily lead to engagement on others.
Increased User Engagement: Users interacting with multiple services within the app boosts overall engagement and retention.
Cost Savings through Shared Infrastructure: The operational efficiencies derived from shared systems can potentially lower costs.
Hub and Spoke Delivery Model: This innovative delivery model allows Swiggy to optimize delivery routes, enhancing efficiency and reducing costs.
The Hub and Spoke Delivery Model
The Hub and Spoke model is crucial for reducing delivery costs, a significant expenditure in food delivery services. By allowing delivery partners to collect and deliver multiple orders in a single trip, Swiggy can cut down on costs significantly. For example, if the average delivery cost is ₹30 per order, Swiggy’s model could potentially reduce this to ₹24, leading to substantial annual savings.
Challenges Facing Swiggy
Despite its advantages, Swiggy faces significant challenges. One of the main concerns is its market share, which has been declining since 2018. Unlike the successful super app models in China, Indian consumers tend to favor specialized applications. This cultural preference may hinder Swiggy’s growth potential.
Competition and Market Position
While Swiggy has focused on innovation and in-house development, Zomato has aggressively expanded into tier 2 and tier 3 cities, gaining a foothold that Swiggy has yet to achieve. Zomato’s strategy of making numerous acquisitions has allowed it to expand rapidly, while Swiggy’s 11 acquisitions seem cautious by comparison.
Financial Performance Overview
As Swiggy prepares for its IPO, understanding its financial health is crucial. The company plans to raise ₹6,664 crores through an Offer for Sale (OFS) and ₹5,000 crores for fresh shares to invest in marketing, technology, and infrastructure. Swiggy’s revenue grew by 36% from ₹8,265 crores in FY23 to ₹11,247 crores in FY24, while its losses decreased by 44% during the same period.
Return on Investment
Return on net worth is an important metric for evaluating a company’s profitability. Swiggy’s return on net worth stands at -3.16%, an improvement from -46.15% last year. In contrast, Zomato has achieved a positive return of 1.72%. This disparity highlights the challenges Swiggy faces in turning a profit.
Leadership Stability and Its Importance
Another critical issue for Swiggy is leadership stability. The company has experienced a significant executive exodus, with several key leaders departing in a short time. This turnover could impact decision-making processes and operational efficiency as Swiggy strives to improve its profitability.
Conclusion: A Mixed Bag for Investors
Swiggy’s IPO presents a blend of opportunities and challenges. While its innovative super app model and robust revenue growth are promising, the company must address its declining market share and leadership stability to attract investor confidence. The upcoming IPO will be a pivotal moment for Swiggy, and investors will need to weigh the potential risks against the opportunities of investing in this evolving entity.
As you consider your investment strategy, it’s essential to stay informed about Swiggy’s developments and market dynamics. Share your thoughts in the comments—are you considering investing in Swiggy’s IPO?
Study materials:
https://bytes.swiggy.com/re-architecting-swiggys-logistics-systems-ddf301a29fa0
Link to my other case study:
https://geocrit.com/Japan’s-lost-decade