Swiggy Claims Food Delivery Profitability, But Is That The Full Picture? 

In what was a surprise announcement this week, Swiggy cofounder and CEO Sriharsha Majety claimed that the company has achieved profitability in its food delivery business. While Majety did not reveal anything further about this milestone, the timing of the blog post is curious for more than a few reasons.

For one, two of Swiggy’s investors have marked down the value of their investments in the company in recent weeks. Secondly, Swiggy is perhaps looking to get a leg up on long-time food delivery rival Zomato, which will release its FY23 numbers later today. And the third reason is likely the pressure of ONDC, which has been making the headlines in recent weeks as an alternative to the food delivery duopoly of Zomato and Swiggy.

“As of March 2023, Swiggy’s food delivery business has turned profitable (After factoring in ALL corporate costs; excluding employee stock option costs),” Majety claimed, but stopped short of actually giving us the numbers around profitability.

Of course, we wanted to know whether this means profitability for the entire year or just for the month of March.

What a Swiggy spokesperson told Inc42 did not clarify matters either. “The timeline when we hit profitability was March” was the company’s response and no further explanations were provided, nor was there any reasoning for excluding ESOP costs, which could dent profitability.

Coming back to the blog post, CEO Majety then went on to claim that there are other parts of the business that are slowly gaining traction and close to breaking into positive unit economics. So let’s analyse the three major factors that have potentially led to this uncharacteristic mid-year announcement by the usually reticent Swiggy leadership.

Profitability Balm In Markdown Season?

First, it was Invesco which slashed Swiggy’s valuation to $5.5 Bn and more recently US-based asset management company Baron Capital slashed the fair value of its investment in Swiggy books by 34% to $7.3 Bn.

So Swiggy’s announcement out of the blue might just be a way to calm some of the nerves around its own bloated valuation, or maybe it feels other investors are about to do a similar markdown exercise on their books.

After all, we are in the midst of a markdown season when other unicorns have also seen their valuations cut to size. Pharmeasy, Ola, OYO and Pine Labs have suffered a similar fate.

The food delivery giant’s last fundraise of $700 Mn in January 2022 saw it touch a valuation of $10.7 Bn. This round was led by Invesco, so the drop to $5.5 Bn on Invesco’s books is a particularly scathing review of how bloated Swiggy was just over a year ago. Even before it added new lines of business (more on this later).

Is the announcement of the food delivery entering black (not entirely, mind you) just a way to take the attention of this drop in valuation? We asked Swiggy, but the company declined to respond.

Zomato Vs Swiggy: Profit Edition 

Zomato and Swiggy — it’s been an eternal (pun not intended) rivalry in the Indian food delivery space. Given their respective HQs in Gurugram and Bengaluru, these two giants, in a way, divided up the Indian landmass with strangleholds in their regions.

And with Deepinder Goyal-led Zomato set to announce its FY23 results today (Friday, May 19), Majety’s words about being one of the few global food delivery platforms to achieve profitability ring loud.

It must be noted that like Zomato, Swiggy has been on a massive cost-cutting spree throughout the past year.

While Zomato has looked to extract higher commissions from restaurants and increase its ad income for a healthy revenue mix in a push towards profitability, Swiggy went for layoffs, shut down loss-making businesses, added a platform fee of INR 2 per order and added new lines of business on the back of existing infra. It also sold its kitchen infrastructure business Swiggy Access to Kitchens@ in a share-swap deal.

The food delivery giant has also gone through a leadership exodus with key leaders from Instamart as well as the core business departing, which could pose further problems down the road.

Chief technology officer Dale Vaz stepped down from his position to take up an advisory role, with Madhusudan Rao being named his replacement. Vaz’s departure was days after Karthik Gurumurthy, the head of Instamart, also stepped down from his position to take a sabbatical. Swiggy cofounder Phani Kishan Addepalli will be taking up the role of head of Instamart.

Swiggy needed to cut back on a lot, given that in FY22, the company posted a consolidated loss of INR 3,629 Cr, against revenue of INR 5,704.9 Cr. Of this, INR 3,444.4 Cr came from the food delivery business.

Essentially, the loss for the year was higher than what it earned from the food delivery business. So achieving profitability would be no small feat.

Of course, Zomato is expected to announce its progress today and we are likely to see a return of ‘Adjusted EBITDA’ and other metrics from the company, if its previous quarterly results are any indication. Does Swiggy have an inside view of what Zomato may announce and is it trying to get its word out before the ‘red’ app?

Finally, The ONDC Threat

Majety’s post also coincides with the wide spotlight on the Open Network for Digital Commerce (ONDC) where food delivery orders have skyrocketed in the past few weeks.

While other apps have not been able to break the duopoly of Swiggy and Zomato, many restaurants see ONDC as a ray of hope. Besides, industry players also believe that ONDC has the potential to complicate life for Swiggy and Zomato.

For one, restaurants love the fact that unlike Swiggy and Zomato, the data of the customers ordering through ONDC will be shared with them. They claim this will enable them to improve services, understand customer behaviour and ordering patterns, and tailor their menu and pricing accordingly.

As we saw in our in-depth look at ONDC’s food delivery service, buyer apps are able to undercut Zomato and Swiggy thanks to the lower commission restaurants have to pay. This has resulted in the daily order volume growing to over 10K.

Even though some brokerages do not see ONDC as a threat to Zomato or Swiggy in the near term, the fact is consumers gravitate towards wherever they find lower prices. For now, that’s ONDC, and Swiggy claiming profitability is perhaps a signal to cut through the ONDC noise from a business perspective.

In other words, the company is saying it’s likely to be profitable even if it loses a few orders here and there.

We also asked Swiggy whether it felt that an announcement about the profitability was needed due to the attention on ONDC. The company declined a comment on this too.

Swiggy’s Leaps To Profit

But is Swiggy just food delivery? Majety’s post smartly frames the growth within the confines of food delivery.

To be fair, that’s what most people know the company for. But the past three years have seen the addition of Swiggy Instamart and Minis on the quick commerce and D2C discovery side, along with a smattering of experiments such as Swiggy Maxx for ecommerce.

The company also spent $150 Mn-$200 Mn to acquire Dineout from Times Internet and go toe-to-toe with Zomato in the dining-out business.

About Instamart, Majety said the company is “on track to hit contribution neutrality for this 3-year-old business in the next few weeks”. This is where things became a bit too esoteric for us.

We were stumped by the usage “contribution neutrality” which we haven’t seen referred to by any startups before. Indeed a Google search resulted in reports that had covered Swiggy’s announcement and quoted that phrase verbatim.

So we asked the company about the state of the quick commerce business and this curious metric. However, a Swiggy spokesperson declined to explain it and simply said, “Instamart would reach unit economics positivity in the next few weeks.”

We don’t know when Swiggy will release its financials for FY23, but if these claims of profitability hold water in the P&L statement, it will indeed be a red letter day in the food delivery space.