Customer experience, and not capital, will ultimately drive the fortunes of quick commerce platforms, Swiggy’s co-founder and CEO Sriharsha Majety said in an interview, as the company counts down the days to its ₹11,300-crore initial public offering (IPO) on 6 November.
The comment comes in the backdrop of top quick commerce platforms pouring in billions of dollars to ramp up hyperlocal e-commerce and grocery deliveries in recent months.
To be sure, to beef up its customer offerings, Swiggy is piloting a quick delivery service for food and a partnership for medicine delivery, in addition to the regular grocery deliveries done by its quick commerce arm Instamart.
Swiggy plans to allocate ₹1,179 crore from its IPO proceeds towards Instamart, according to its red herring prospectus published on Monday. The number has been revised from ₹982 crore in the draft prospectus.
Rivals, too, are muscling up. On 22 October, the board of Zomato approved a fundraise of ₹8,500 crore via qualified institutional placement (QIP) mainly to take on rising competition in the quick commerce space. Another competitor, Zepto, has raised upwards of $1 billion in funding in the past six months alone.
Majety said the rising competition is not unexpected. “Grocery and retail are large categories, and large categories tend to attract competition; the same is the case with food delivery,” he said. “There is enough room for multiple players in these categories.”
“With the new fundraise, we’ll have more than a billion dollars. The food delivery business is already generating cash, so we will have another lever to re-invest,” said Rahul Bothra, chief financial officer of Swiggy. “Some of it is also defensive fundraising and competitors are also raising defensive capital. We already have a strong balance sheet, and we will work on strengthening it.”
Swiggy’s journey
Swiggy’s IPO will open for subscriptions on 6 November, nearly a decade after it was founded in Bengaluru by BITS Pilani and IIM Calcutta alumnus Majety and BITS Pilani graduate Nandan Reddy.
Prior to launching Swiggy, Majety and Reddy had founded logistics firm Bundl Technologies in 2011, which was later rebranded to what is now known as Swiggy after it entered the food-tech industry. They were joined by Rahul Jaimini, an IIT Kharagpur alumnus, who helped build the software and interface.
“I think we have only known this world for 10 years. I think Swiggy was born also in the middle of a super competitive marketplace. We were maybe the eighth or ninth player to show up when we did,” Majety said.
Swiggy entered the food delivery space in 2013 at a time when the likes of Foodpanda, DeliveryHero and Tinyowl had already cornered significant market share. Over the years, most of them exited the market, leaving Swiggy and Zomato as the top contenders.
“Every single category has been hotly contested and I am sure that is going to continue. As long as we play in exciting categories, we are always going to have a lot of competition. So, it is all part of the game,” Majety said.
Quick, but substantial
Several players including Blinkit, Nexus Venture Partners-backed Zepto and Tata’s BigBasket are rushing to cash in on this growing opportunity of quick commerce, raising capital and aggressively expanding.
Zomato-owned Blinkit leads with 39% market share, followed by Swiggy Instamart (37%) and Zepto (20%), according to a report by financial services firm Chryseum.
Large e-commerce players such as Flipkart and listed players Reliance Retail and Tata Neu are also reportedly looking to invest in quick commerce as consumers get hooked to instant deliveries of both small grocery items and big-ticket goods like appliances and electronics.
The big IPO
Swiggy has raised $3.2 billion in private capital till date from marquee investors like Prosus, Accel, Norwest Venture Partners and Elevation Capital, who are set to reap multifold gains on their investments as the food delivery and quick-commerce platform goes public.
Swiggy will not limit its investment in Instamart to ₹1,179 crore and is willing to spend a lot more as the segment grows, CFO Bothra noted.
“The growth of dark stores will be a derivative of the strategy and growth we are seeing. But we will not just plant flags because we have the capital. We already have a very wide network with the widest geographical footprint as compared to competitors,” Bothra said.
Instamart, which was launched in 2020, is Swiggy’s fastest growing vertical today and will continue to be a major growth driver for the company for the next few years, Majety said.
The company is working on expanding city coverage as well as reducing the speed of deliveries, which has already come down to an average 12.5 minutes from 17 minutes over the past 12 months, thanks to a denser network of stores, according to Bothra.
The Bengaluru-based hyperlocal firm is looking to invest ₹755 crore in expanding its dark store network, taking the count to 741 spanning nearly 2.6 million sq. ft. It had 581 dark stores at the end of the June quarter.
For context, Zomato-owned Blinkit operated 639 stores in the same period and added nearly 112 stores the following quarter.
Valuation game
Consumer startup Swiggy is targeting a valuation of $11.3-11.5 billion in the upcoming initial public offering (IPO), down from its original ask of $12-15 billion. It plans to raise ₹11,300 crore with the issuance of new shares amounting to ₹4,499 crore, at a price band of ₹371-390.
“There was a recent listing after which investors told us to be fair with our pricing,” said finance chief Bothra.
Last week, Hyundai Motor India’s shares struggled to get fully subscribed at a price band of ₹1,865 to ₹1,960 per share, resulting in its opening below the listing price, cautioning companies to attach fair pricing.
Hyundai Motor India’s shares closed at ₹1,820 apiece on NSE on Wednesday, still below the IPO price.
“For us, the pricing was about ensuring that it’s a broadening stakeholder kind of journey. And we definitely wanted participation of key long-term investors for us to support the vision that we have. And through the conversations, we have found a price that we thought was a fair discovery to get the investor set we like onto the captable,” Majety added.
New opportunities
Swiggy also sees white spaces in some recently launched pilots including Bolt, a 10-minute food delivery service, and 10-minute medicine delivery service in partnership with PharmEasy.
“A lot of these are centred around which consumers, categories and geographies can attach themselves to the models we have already built. A lot of experimentation will continue. If there’s a need for something among consumers, we’ll see if there’s a way we can do it,” said Rohit Kapoor, chief executive of Swiggy’s food delivery business, who joined the firm from Oyo in 2022.
According to Kapoor, Bolt was built on the universal principle that customers need things faster and cheaper.
“Our learnings from quick commerce logistics make us feel confident of taking up something of this nature. I don’t think Bolt would have been born if we did not have quick commerce,” Kapoor added.
Swiggy wants to list top restaurants with high brand recall on Bolt, that serve quick and readymade snacks like samosas and sweets which represent 45% of the items sold under Bolt, according to Kapoor.
“We are in a unique position where we have the expertise to pull off both food delivery and grocery delivery. It’s not easy. It’s logistically quite challenging. But the early results of our pilots are good and we are still working on it,” he said.
