Swiggy to reroute from discounts to product and repeat use case driven growth

Yesterday we read about Foodpanda’s decision to minimize their delivery operations and marketplace model because of the lack of orders which derived from their decision of not spending all their money in discounts and cashbacks like other foodtech firms - Swiggy and Zomato.

But it’s not just Foodpanda that realises that a heavy discount model is not sustainable and wouldn’t lead to a profitable business - a major purpose of entrepreneurship. Swiggy, for quite some time has been trying to gradually diminish the discounting practices and finding new methods of driving scale.

This Bengaluru based baby unicorn has decided to cash on more products and repeat use cases instead of discounts. The target market of this strategy is top 50 million internet users.

These plans around including order density share a sort of a chicken and an egg relationship where more products like the loyalty programme Swiggy Super, home-style food programme Swiggy Daily, Swiggy Launchpad the university programme, single meal deal Swiggy Pop, and the hyperlocal delivery product Swiggy Stores, go on to ensure that people make repeat orders via these special services. Most of these require a subscription for the usage itself.

On the other hand, repeat use cases, where people order regularly or more frequently from certain restaurants from the wide range available on the platform catering to the interest of a diverse customer demographic, lead to a user opting for one of those products for efficient ordering. This also drives the revenues and scale, by creating more and more repeat loyal customers that pay regularly for both the orders and the products.

As Chief Operating Officer of Swiggy, Vivek Sunder told ET, Swiggy Super sees the users visiting the app 50% more frequently than regular customers and there are 20% more likely to be retained on the platform for long term.

Discounts are anyway slated to come down by 40% for both the top players Swiggy and Zomato during this year, as these two keep the trend of duo-polizing the market.

Till now, both the companies had been spending around $30-40 million monthly on orders, but this is slated to reduce in the current year. While we already know how Swiggy plans to do this, Zomato’s strategy has been to create an end to end business with Hyperpure acting as a supply chain supporter to restaurants and delivery and last mile delivery for customers.

In the last one year, the delivery costs for Zomato have decreased by 43.2% from Rs 44 to Rs 25, and last mile delivery costs have slashed by 24.4% from Rs 86 to Rs 65.

This also means that the discount habituated customer base also has to prepare itself for paying a little extra to get the added benefits of platform products and get less accustomed to cashbacks on a daily basis.

While discounting practices are going down, the industry is slated to go upto $2.3-3.5 billion by the end of 2021 in India, and $250 billion by 2022 globally.