SUMMARY
A report by JM Financial says that the entry of a cash-rich player like Amazon in food delivery could hamper Swiggy and Zomato’s path to profitability
Amazon is testing Amazon Food in Bengaluru since May this year
Both Zomato and Swiggy have seen a loss in revenue from their food delivery businesses during the country-wide lockdown
Indian foodtech unicorns Zomato and Swiggy have been facing a financial crisis, with their food delivery businesses being severely impacted due to the Covid-19 pandemic. Now, a recent report says that the entry of new players in the segment could further bring down revenues for both companies.
A report by financial services company JM Financial highlights that the potential entry of Amazon, which is testing Amazon Food in Bengaluru since May, in the food delivery space, could hamper both Zomato and Swiggy’s path to profitability this year.
“We are launching Amazon Food in select Bengaluru pin codes allowing customers to order from handpicked local restaurants and cloud kitchens that pass our high hygiene certification bar. We are adhering to the highest standards of safety to ensure our customers remain safe while having a delightful experience,” an Amazon spokesperson said in May this year.
“We believe the entry of a cash-rich player such as Amazon has the potential to impact the path to sustainable profitability for both the incumbents over the medium-to-long-term,” says the report.
Zomato, Swiggy Lay Offs Amid Pandemic
Both Zomato and Swiggy have been forced to lay off many employees in the past few months, during the lockdown, when the food delivery segment witnessed a fall in revenue because of people preferring home-cooked meals due to fear of disease transmission. Swiggy is believed to have laid off more than 1,400 employees as part of its ‘realignment exercise’ amid the pandemic.
Last month, a Swiggy spokesperson told Inc42, “In May, we began the exercise of realigning resources to create capacity in higher potential areas with the optimism of the business attaining pre-covid levels in the near-term. However, with the industry still only having recovered to about 50% of its peak, we have to, unfortunately, go ahead with this final realignment exercise, which will result in the net loss of 350 jobs. We are concluding the exercise we began late May and there are no plans for any further restructuring.” The company had laid off 1,110 employees in May.
Meanwhile, Zomato laid off 13% of its staff, translating to around 5,000 employees in May. An Inc42 analysis of the company’s annual report revealed that Zomato is likely going to incur a 50% fall in revenue for fiscal year (FY) 2020-21, compared to the previous year.
To offset the fall in revenue in their traditional food delivery verticals, both Zomato and Swiggy had entered the online grocery delivery segment. However, two months after it entered the space, Zomato shut its grocery delivery business ‘Zomato Market’ which was operating in 80 cities. According to sources quoted by The Ken, Zomato decided to shut down the grocery business after finding that the business was not scalable.
But Swiggy is hanging on, recently launching InstaMart in Gurugram, which promises delivery of groceries and other household items within 30-45 minutes. The company is also operating Swiggy Stores, a hyperlocal delivery service for groceries and other essentials.
Food Delivery Segment In India
According to the JM Financial report, the food delivery market in India is set to double in the next five years, from an estimated $3.6 Bn in FY20 to $8.6 Bn by FY25.
With Zomato’s acquisition of Uber Eats in January this year, the food delivery segment in India is effectively a duopoly now. While Zomato reportedly has a 55% market share, Swiggy is believed to have more than 60% revenue market share. It remains to be seen if Amazon’s impending full-blown entry in the food delivery market would alter the status quo.
