Inside Swiggy Instamart’s ‘Mega Dark Store’ Plan

All eyes are naturally on Swiggy given its massive IPO, but there’s another mega plan brewing in Bengaluru, with Swiggy Instamart in mind.

The consumer services giant is looking to catch up with quick commerce rivals by expanding the size of its Instamart dark stores to deliver a wider assortment of products in 10 to 20 minutes. 

Chief financial officer Rahul Bothra told Inc42 that Swiggy is in the process of operationalising ‘mega dark stores’ with an area of 8,000-10,000 sq ft in several pockets of Bengaluru. He added that quick commerce is currently contributing 40% to Swiggy’s consolidated revenue, and the focus is on increasing this share in the near term. 

“The dark stores we are now opening will ideally have an area equivalent to 2-3 of our current dark stores. This will not only increase our SKU coverage, but also support assorted deliveries — i.e we can deliver some products in 10 minutes and others within 20 minutes,” the Swiggy CFO added.  

Swiggy cofounder CEO Sriharsha Majety added that while speed is essential, having the right assortment of products and SKUs will be a key differentiating factor in the quick commerce space. 

The CEO believes that the quick commerce industry is going through a hyper growth cycle, where the assortment factor will trump speed of deliveries. 

While increasing the delivery seems contrary to the quick commerce model, Bothra said that as per Swiggy’s consumer behaviour research, the need for 10-minute deliveries is specific to only grocery and essentials, while consumers are adapting to waiting for deliveries of non-grocery items. 

More and more quick commerce platforms are looking to extend delivery timelines for certain categories and bulk orders. Bothra added that Amazon, for instance, offers staggered delivery times for a large order or when combining products from multiple categories. 

“For instance, consumers can today get a delivery of plain white bed sheets within 10 minutes, but when Swiggy Instamart offers a catalogue of bedsheets in 15 colours, consumers are okay with waiting for 20 minutes,” Bothra added. 

Swiggy Instamart 2.0 & Mega Dark Stores

Swiggy’s ‘mega dark stores’ for Instamart will cover a radius of 2 Km, and these stores will increase the SKU selection without compromising on the quick commerce customer experience. The idea is to cater to the quick commerce 2.0 moment, where it’s not just groceries and essentials that consumers are ordering. 

While establishing mega dark stores will indeed be capital intensive and an asset heavy move, this is a necessary step for quick commerce platforms looking to increase the average order value and offset the cost of deliveries as well as the tech and infrastructure costs. 

Swiggy’s key rivals Blinkit and Zepto are already pumping in millions of dollars to set up larger dark stores and add to the SKU count and product assortment. 

CFO Bothra anticipates a 70:30 revenue split between grocery and non-grocery categories in the near future. 

According to Swiggy’s pre-IPO filings and an investor presentation seen by Inc42, the company is aiming to expand its dark stores network in existing and new cities, and also onboard more brands to offer a broader product selection. Another big focus area is improving fulfilment efficiencies, under which the mega dark stores will play a big role. 

“The share of non-grocery items on Instamart has increased from 18.20% in FY22 to 25.28% as of June 30, 2024, indicating a growing consumer preference for online purchases in this segment,” Swiggy’s investor presentation said. 

Adding to the SKU count is critical for the most scaled up quick commerce platforms, especially as the likes of Flipkart, Tata-owned BigBasket, Amazon, JioMart and others are looking to enter this space with a full arsenal of products. 

Speaking about the competition, Bothra said that the quick commerce industry looks ripe for at least 5-6 players. He also believes the customer acquisition in quick commerce will depend on the convenience, assortment of products and customer experience. And this he believes will be Swiggy’s edge. 

”We don’t think it will be a duopoly like food delivery. However, we have been able to scale our quick commerce rapidly from 30 minutes to 10 minutes delivery within a year, and we are not deterred by the entry of ecommerce giants. These players have operated in different market conditions and will need to first establish dense networks of fulfilment stores. Some of them tried their hands at 30-minute deliveries, but could not succeed,” the CFO added. 

Swiggy’s B2B Play 

Swiggy intends to supplement the revenue push on the consumer front with a B2B distribution and supply chain platform for FMCG retailers and wholesalers. 

“We are growing fairly in B2B business where we help retailers and wholesalers strengthen their supply chain, provide them with tech capabilities, infrastructure and access to brands,” Swiggy CFO Bothra added.

Notably in July 2023, the company acquired LYNK logistics to enter the food and grocery retail supply business.

LYNK leverages a proprietary, integrated technology platform to power the retail distribution value chain across warehousing, inventory management and logistics operations. Its client portfolio includes Hindustan Unilever, ITC, Tata, Lakme, PepsiCo, Britannia, among others.

Swiggy management said that the company has acted as technology enabler for small and medium retailers and is also assisting in improving supply chain efficiencies between FMCG brands and retailers.

The Swiggy Walled Garden

For CEO Majety, Instamart is a big focus area, but it’s just one of the many verticals for the consumer services giant. In some ways Swiggy is a super app, and Majety is targeting 110 Mn active users who transact at least 15 times a month across food delivery, quick commerce and other verticals. 

Swiggy’s investor presentation claims order frequency has increased by 70% in the last 6 years whereas average spends have almost tripled during the same time period.

More than 27% of Swiggy’s user base uses more than one of its services placing three orders on average per month. 

In terms of average order value, Swiggy Instamart has seen a significant growth from INR 398 in FY23 to INR 460 in FY24. On the other hand, in the food delivery vertical, the AOV has only seen a moderate increase from INR 416 in FY23 to INR 428 in FY24.

Wealth management and investment advisory Deven Choksey believes Swiggy’s growing engagement can be attributed to the company’s unified app, its expanding service offerings, and a robust partner network.

But there’s little doubt that quick commerce and Instamart is the lynchpin for the super app service, as this is where usage frequency will be highest. 

And this means that the biggest challenge for CEO Majety & Co will be capitalising on the quick commerce funnel and bringing more consumers into Swiggy’s walled garden. . 

[Edited By Nikhil Subramaniam]