Despite Heavy Discounts, Swiggy Losing Market Share To Zomato: Jefferies

Equity research firm Jefferies has said that foodtech major Swiggy was fast losing market share to competitor Zomato, despite offering heavy discounts.

Citing Prosus’ recently released half-yearly financial report, Jefferies said that the gross value of Swiggy’s food delivery business stood at $1.3 Bn (INR 10,600 Cr) in the first six months of 2022. In contrast, the research firm noted that Zomato posted a gross order volume of $1.6 Bn (INR 13,000 Cr) for its food delivery vertical in the first half of the financial year 2022-23 (FY23). 

“Swiggy grew 40% while Zomato growth was 55% during this period… Zomato averaged a 55% share, which we believe is the company’s highest share,” said Jefferies in a report.

The report noted that Swiggy’s losses during the period under review were six-fold higher than Zomato’s standalone losses. The Bengaluru-based giant’s losses in the first half of the current fiscal year were ‘significantly higher’ at around $315 Mn (INR 2,570 Cr), while Zomato’s standalone loss during the period hovered around the $50 Mn (INR 410 Cr) mark, according to Jefferies. 

Even after counting the $120 Mn (INR 980 Cr) losses of its quick-commerce venture Blinkit, Zomato’s cumulative loss stood at $170 Mn (INR 1,390 Cr), the report noted. 

“Zomato has since improved its performance, with a recent quarter loss of slightly more than INR 204 crore,” the report stated. 

The Gurugram-based foodtech major narrowed its consolidated loss to INR 250.8 Cr during the September quarter of FY23, down from INR 434.9 Cr during the same period last fiscal year. Operating revenue during the period under review also surged 62% YoY to INR 1,661.3 Cr in Q2 FY23.

Drawing another parallel, the research firm noted that despite growing 15X year-on-year (YoY), Swiggy’s quick commerce arm Instamart had reported a gross merchandise value of INR 2,100 Cr in the first six months of the current fiscal year.

In comparison, Jefferies said that Zomato’s Blinkit also grew at an ‘impressive pace’, scaling to a GMV of INR 2,205 Cr during the period under review. It attributed the growth numbers to an ‘increased buy-in’ from customers. 

Noting that Zomato’s market share was at a record-high level in H1 FY23, Jefferies said, “We see a strong case for Swiggy dropping its aggressive stance in food delivery in a bid to reduce its losses, and in the case that does not happen, Zomato may be induced to increase its aggression to drive growth.”

A Near-Total Duopoly

This comes barely a day after Prosus published its half-yearly report, which attributed nearly $105 Mn in losses to the tech investor because of its stake in Swiggy. A major chunk of this came from losses raked up by its quick commerce arm, Instamart.

However, both Zomato and Swiggy more or less operate in a near-total duopoly, accounting for 90-95% of the total food delivery space.

As a result, the two players are locked in an intense battle to control the reigns of the highly competitive and lucrative space. 

While heavy cash burn from their quick-commerce ventures have been a major source of mounting losses, no clear path to profitability and a dent in sales due to inflation have made matters worse for them. 

The two players have also been in the line of fire of restaurant associations that have called for boycotting the foodtech players over their alleged predatory practices. The aftermath has seen the Competition Commission of India (CCI) opening an antitrust case against the two giants. 

While the two players continue to be knee-deep in losses, they continue to invest heavily in scaling up to acquire customers. Swiggy has made notable acquisitions in the forms of companies such as Dineout, 48East and SuprDaily. It has also unveiled a slew of new offerings such as Swiggy Dineout to entice new customers and spruce up its bottomline. 

Taking Swiggy head-on, the recent past has seen Zomato also go on an overdrive to acquire and launch new offerings. Earlier this year, it completed the controversy-riddled acquisition of Blinkit. Close on the heels of that, it also launched its intercity food delivery initiative which allows its users to place food orders with popular restaurants across different states. 

It has also introduced its discount programme for dining, Zomato Pay, and food entertainment carnival Zomaland to attract more eyeballs and add more users to its kitty. 

This has not been without hiccup. To fuel the break-neck growth, Swiggy has had to raise big funding rounds. Earlier this year, it raised a $700 Mn funding round, doubling its valuation to $10.6 Mn and turning a decacorn. In total, the Bengaluru-based foodtech major has so far raise $3.6 Bn in funding so far. 

Zomato, on the other hand, listed on the markets last year and, after witnessing initial gains, has had a tumultuous year on the bourses. 

From an INR 1 Lakh Cr market capitalisation at the time of listing in 2021, Zomato’s valuation has since then fallen to INR 54,004 Cr currently. The market volatility has wiped off close to 60% of investor wealth since the record high of INR 161.25 it posted in November last year. 

However, at stake, there is the lucrative Indian online food delivery market which was last pegged at around $2.9 Bn in 2020. This industry is likely to zoom past the $13 Bn mark by 2025.