Zomato versus Swiggy: Who will win the food delivery battle and why?

On the lines of the war for the e-commerce crown between homegrown Flipkart and Jeff Bezos-led Amazon, the battlefield for the food delivery war has been set, and the contenders are, well, obvious - Zomato and Swiggy.

While Swiggy started delivering food in early 2014, Zomato was a late entrant in delivery in February 2015.

Despite the late entry, Zomato has caught up fast with Swiggy. Over the past two years, the Gurugram-based company has been ramping up its food order business aggressively. Recently, it reached the 3-million-orders mark and claimed to have narrowed the gap with competitor Swiggy.

At present, Swiggy does about 4 million orders a month while Zomato processes about 3 million orders on a monthly basis. Importantly, Zomato has also turned profitable in all geographies and to celebrate this feat, it announced a zero commission campaign for restaurant partners.

By doing so, Zomato has opened an assault on Swiggy.

“The zero commission model is certainly going to hurt Swiggy,” says the founder of one of the foodtech companies. Swiggy charges about 18-20% commission from restaurant partners. On an average, a restaurant makes anywhere between 40-60% margin on an order.

By signing up for the zero commission campaign, restaurants can cut the margin they shell out to Swiggy.

Why Zomato is playing the zero commission card and is it sustainable?

Of course, Zomato wants to give the jitters to Swiggy and grab its market share. But, is it sustainable for Zomato, which has been eyeing a funding round?

Yes, Zomato can play with zero commission as its advertising business is pretty much sorted.

“See, over the years Zomato has streamlined its advertising business and it’s in a position to feed its food-ordering business with that,” says the above-quoted person who didn't wish to be identified.

According to Zomato, its revenue from advertising stands at $38 million in FY17.

While Zomato plans not to charge anything for delivery from restaurant partners, it will certainly pass on benefits to the customer. Since Zomato won’t charge for ordering, it will negotiate with restaurant partners to pass on discount (in the range of 10 to 15%) to customers.

“By passing discounts to customers, Zomato will be able to bring a major chunk of Swiggy’s customer base on its own ordering platform,” points out Satish Meena, forecast analyst at Forrester.

Understanding the food ordering space

Food ordering in India is largely divided into two buckets. The first bucket is where customers usually order biryani, Chinese and Indian cuisine while the other is specialised cuisine comprising of outlandish gourmets - pizza, burgers, pasta.

While Swiggy undoubtedly has the lead in the first category, Zomato rules the specialised cuisine segment by striking exclusive partnerships with restaurants.

On the consumer side, Zomato has a clear edge as it brings a major chunk of search traffic organically.

Entrackr’s sources point out that close to 80% of ordering at Zomato still happens through its parent app (Zomato has a separate app dedicated for ordering). “Zomato drives a lot of search traffic while Swiggy has been trying to divert that user base to its mobile and web apps. This is where Swiggy is bleeding profusely,” adds Satish.

Swiggy has a pole position on the merchant side. Zomato had neglected the ordering part for a long time as it didn’t see much value in it - however, Swiggy spotted an opportunity amid the fall of Foodpanda, Tinyowl, and others.

For small restaurant/food joints (with limited capacity for dining), the platform that rakes in orders and ensures delivery with minimum manpower assistance is what matters the most.

“Currently, Swiggy accounts for about 50% of online orders from my kitchen while Zomato does about 20-25% orders. I think Zomato needs to beef up its logistics part to compete with Swiggy,” says Mihir Shrivastava who runs Punjabi kitchen in DLF Phase-II, Gurugram. However, he expects Zomato will gain the lead over Swiggy with its zero commission model.

Will Runnr acquisition ramp up Zomato’s in-house logistics?

Zomato recently acquired logistics company Runnr. The acquisition was touted as an effort to improve the delivery aspect of the Info Edge-backed company. However, some believe the acquisition of Runnr isn’t significant and Zomato will keep relying on third-party logistics platforms to ensure delivery.

Runnr does about 3,00,000 deliveries a month, which is only 10% of Zomato’s volume. “I see Runnr’s acquisition as a face-saving gimmick for a particular investor,” adds one of the co-founders of a defunct hyperlocal logistics startup from Gurugram. He emphasizes that managing riders and the entire logistics stack is cumbersome and Zomato wouldn’t work to build that.

Cloud kitchens look like the next frontier of revenue for Zomato and Swiggy. Cloud kitchens are restaurants without storefronts. And, they are becoming the new customer acquisition channel for both companies. However, they follow a different model from each other.

Zomato positions its cloud kitchen as a Zomato Infrastructure Service wherein it will promote third-party brands. Meanwhile, Swiggy has been creating its own brand - ‘The Bowl Company’.

This looks like a smart move from both companies but they have to do it cautiously without irking existing restaurant partners.

Swiggy has been promoting its cloud kitchen in Koramangala (Bengaluru) from early this year. “It’s been doing about 700-800 orders from Koramangala alone,” says one of the Bengaluru-based food-tech companies working closely with Swiggy.

With cloud kitchen, both companies have started competing with partners such as Fresh Menu, Box8 and Inner Chef, among others.

Cloud kitchens are a new concept and are in the nascent stage not only in India but globally. British food delivery unicorn Deliveroo also started ‘Edition’, its cloud kitchen platform, recently. “It’s very early for the cloud kitchen format but certainly a sweet spot for Swiggy and Zomato,” says Satish.

Cloud kitchens allow aggregators to earn 15-25% surplus as compared to orders for restaurant partners.

Is food delivery a take-all game?

According to research firm RedSeer, India’s online food delivery market comprising of aggregators and cloud kitchens grew at 150% last year, in comparison to 2015, with an estimated Gross Merchandise Volume (GMV) of $300 million in 2016.

When we compare this with the Chinese food delivery market that largely grew on the back of smartphone penetration - it’s very minuscule. China has about 256 million people who order food online. This number is estimated to touch 346 million by next year.

While we can’t ascertain or guesstimate the number of people ordering food online in India, it should be under 10 million (our guesstimate).

The food delivery market in India has just taken off and there is unprecedented scope for growth. But, the bigger question is - from where will the growth come?

The answer could probably be tier II and III cities. Of course, non-metro cities will drive the growth. However, it will take time. Maybe two-three years.

From outside, it looks like the food delivery segment is moving towards saturation in metros - but that’s not the case.

“Despite an aggressive campaign by food delivery companies to sign-up restaurant partners and push consumers to order online, many small-scale restaurants tap orders via phone and consumers place them through this channel. Bringing such partners and consumers online can offer momentum to Zomato and Swiggy,” points out Alok Jain, co-founder and CEO, Yumist.

Analysts believe the food delivery space is unlikely to be monopolised by one player. The market is large enough to accommodate multiple players.

“Currently, startups in this space haven’t captured even 10% of the potential in the food delivery market,” quips Abhishek Bansal, Co-founder and CEO of Shadowfax.