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How Swiggy / Zomato could be profitable?
The science of making money in food delivery business.
Swiggy made ₹2,675 Cr revenue in 2021-22 💰
Zomato made ₹4,109 Cr in same year 💸
Here's a structure to get both companies “profitable” ⬇️
Quick context 🗓
Swiggy started 8 years back & Zomato some 14 years ago. Both have raised a combined $6.2B in capital so far. Both companies have reported ~1,800 Cr in net loss this year.
So, what would it take to make Swiggy/ Zomato profitable?
1/ Margins 🧩
Swiggy/ Zomato’s business model is simple, make money from users in delivery fees (₹30 to ₹50 per order) & get commissions from restaurant partners (15% to 22%). This math broadly works something like this. Average order value of ₹400 brings the margin per order to ₹90, caveat being the order wasn’t discounted.
2/ Delivery cost 🛵
Delivery partners make ₹40 to ₹60 per order. Add ₹10 to it for partner churn & onboarding cost plus training. This means atleast at an operational level the business could be profitable. Don't rush “Picture abhi baaki hai mere dost”
3/ Growth rate 📈
Both companies had taken a very high growth run rate with more delivery partners (cost), heavy discounting (cost) & acquiring new users (cost). A thumb rule in this business → Higher the growth rate, worse will be the margins. It's inefficient and both know it.
4/ Pincode expansion & contraction 🧭
Both companies went on to onboard 100s of cities. These long tail of cities hardly add any revenue to the overall revenue number. Think about it → Getting 100K orders/week growth in Bengaluru is easy or getting first 100K orders/week in Jaipur? This contraction of pin-codes is happening as I write this article.
5/ Fixed costs 💵
It has two components - Salaries & Tech infra cost. Salaries will anyways course correct with the macro. Tech infra will get a fluff cutting done, soon. You will soon see both cutting down on middle management roles massively & hiring more early stage employees to reduce salaries.
6/ Discounting 💳
Discounts driven un-natural demand. There is hardly any margin in this business per order. Any discounting (even ~10%) could break the business model itself. I see two routes - either get the merchant to spend money on discounts (which hasn’t worked well) or get the merchants to run ads to get every order (the model amazon has proven & works).
So how would this transition would look like? 🤔
First, lot more orders will attract a delivery fee & minimal discounts. Second, you will see a lot of orders getting batched (reducing cost to serve) & Third, commissions on restaurants going up from here on. All of this at first slower & then rapidly.
That was the food delivery giants’ profitability story ✨
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Getting to profitability is more of science than art 🎯
We go in-depth into identifying core levers to any business and first solve for revenue growth, and then, profitability in the monetisation deep dive as part of the GrowthX experience. Growth teams from PayTm, Meesho, Google, Amazon have gone through the experience and have improved their margins & revenue growth rate.