Swiggy’s IPO: Life-changing for You

Short note: I wrote about what I think will change for customers following Swiggy’s IPO on November 13, 2024. Please reply to my email or comment here with your thoughts and new post ideas. Enjoy reading and remember that a morning walk can solve almost anything 🚶‍♂️🚶‍♂️. Thank me by sharing my newsletter with friends and fam. Newsletter link here.

I am a fan of the six degrees of separation (concept). It is the idea that any two people in the world are six or fewer social connections away from each other. It’s easy to validate if you can think through every interaction you have ever had in your life. It also helps as you realise that missing a fintech mixer didn’t slash your chances of a $20 M seed round for an idea you scribbled on a bar napkin. After all, you’re only six handshakes away from the lead decision maker.

Closer to reality and present times, I thought of this concept when I was reading about Swiggy’s impending public debut on November 13. It logically matters if I am a shareholder/ ESOP holder/ IPO applicant (awaiting allotment).

I would argue that it matters to many more people who order food from Swiggy, groceries/ miscellaneous items from Swiggy Instamart and packages from Swiggy Genie. Focusing on the top categories for Q1 FY2025, Swiggy food delivery has 14.03 million avg MTUs and Swiggy Instamart 5.24 million avg MTUs. Collectively, the Swiggy platform serviced 15.99 million avg MTUs.

Now, let’s dive into what I expect will change across food delivery and quick commerce segments in the Swiggy Verse:

Food delivery

a) Order threshold for free delivery

Presently, the order threshold for free food delivery is an order >= ₹149. This is 25% lower than Zomato’s threshold of ₹199.

At the minimum, Swiggy should lift this threshold to ₹199. I anticipate that this threshold should eventually rise for both players in the next 6-12 months to ₹225-₹250.

User implication: You will pay fees for all orders from ₹149 to ₹198. This will convince a few users (% unknown) to bump up their cart size to ₹199 and above.

b) Unity in platform fee

In mid-October, Swiggy charged ₹6 as platform fee. It followed Zomato later that month in hiking the fee to ₹10. For context, this hike translates to incremental ₹64 crore in quarterly revenue (assuming 160 million orders, derived from ~156 million orders in Q1 FY2025).

I anticipate that this fee will only rise as Swiggy seeks to generate cash flow from its food delivery arm to cover losses made on its QC arm.

User implication: You will pay a higher fee. 

c) Closing the distance arbitrage

Zomato enables free delivery for Zomato Gold members in a 7 km radius. Swiggy enables free delivery for Swiggy One members in a 10 km radius. 

Swiggy should pull back this free delivery threshold to 7 km to match the competition. I anticipate that this 7 km radius will eventually be pulled back to 5 km for all platforms (in 6 to 12 months). This will ironically resemble food delivery before online food delivery when only orders within 5 km were serviced by restaurant fleets.

User implication: You will pay an increased fee for orders on Swiggy from 7 km to 10 km. The distance arbitrage between Swiggy and Zomato will close. 

d) Devaluation of Swiggy One

As of Q1 FY 2025, the Swiggy One program has 5.71 million members (4x members as compared to 1.38 million members in Q1 FY 2024). The loyalty program enables benefits across dining, food delivery and Instamart orders. 

Swiggy should increase pricing for Swiggy One and charge on a quarterly basis so it retains the ability to hike prices across cohorts. The program will be simultaneously diluted if it takes the above steps i.e. lifting order threshold for free food delivery, increasing platform fee and pulling back the free delivery order radius.

User implication: Swiggy pays a high cost for user loyalty as it subsidises delivery fees across orders. Now, you pay marginally higher for the convenience.

Quick Commerce

a) From Nil to XX delivery fee

Swiggy Instamart levies zero delivery fee above ₹99 for a user set and above ₹199 for other users. This is in contrast to Blinkit which charges a fee on almost every order (charges ₹16/ ₹30 for orders > and < ₹199).

The zero delivery fee offered to Swiggy One members is too generous. Swiggy should roll this back and charge a delivery fee albeit lower than Blinkit (at the outset). For example, charge ₹5/ ₹10 for orders > and < ₹199).

User implication: Nothing is free forever. You will eventually pay a delivery fee unless this gets conflated with platform fee.

b) Streamlining handling charges

Swiggy Instamart charges INR 8.10 as handling charges as compared to Blinkit’s INR 5 and Zepto’s INR 10.

Swiggy should standardise its handling charges to INR 10 and layer on a lower delivery fee (as mentioned above).

User implication: You will pay a higher fee per order to Swiggy Instamart (be it for delivery fee/ handling charges/ both).

Conclusion

Swiggy’s back-breaking journey to go public over the last 10 years is irrelevant the moment its shares begin to trade. The only thing that matters is how quickly it can turn profitable, overtake Zomato/ Blinkit and hold off Zepto. Sorry, these are three things, and it has no choice but to fight on each of these fronts. These exclude the wild card- regulatory action to stem the ascent of QC.

Food delivery profitability is in sight, but it will take a herculean effort to get over the line in QC. Swiggy will have to be even more ruthless in cutting costs and turning up monetisation. It will hurt in the short term-- not the company, but its users. Swiggy will have to trust that its brand has earned goodwill, its services provide value and its users realise convenience has a cost.