Swiggy Bets Big On Premium Food Delivery Vertical To Sustain Growth

Online ordering firm Swiggy is betting on its premiumisation strategy in the food delivery space, even as it is re-tooling verticals in search of profitability.

Time-starved and convenience-seeking consumers—led by millennials—have shown immense appetite for having food delivered at home. The trend turned out to be a saving grace for the Rs 4 lakh crore restaurant and food services industry in India, during the Covid-19 pandemic.

"But, when it comes to ordering now, we are seeing growing demand for food and drinks that don't taste mass-produced, and instead offer a worldly and coveted experience," said Rohit Kapoor, chief executive officer-food marketplace, Swiggy.

Then, there are people who are preferring to spend more money on higher quality, artisanal products as the focus shifts to healthier consumption and clean-eating range, he said.

To cash in on this surging demand, Swiggy started its gourmet vertical in Delhi, Mumbai and Bengaluru in February 2022. A year on, it has expanded to 32 cities and onboarded 7,300 restaurants, Kapoor told BQ Prime.

"The gourmet business has experienced remarkable growth in the last year, which indicates strong demand for premium dining options," he said.

'Gourmet' sees two times growth in terms of volumes month-on-month, Kapoor said. In 2022, Swiggy served 1.5 crore gourmet meals, with the highest number of orders coming from Mumbai and Surat, according to him.

The gourmet service is seeing "strong" demand from non-metros such as Jaipur, Kochi, Ahmedabad, central Goa and Chandigarh as well, said Kapoor.

This is in line with the general trend of growing aspirations among the people in tier-2 cities and beyond, to own premium brands.

Many new chefs began operating modest brands out of their homes after the Covid outbreak, as the market for artisanal food expanded. Chefs who have developed cuisine brands, through word-of-mouth and social media marketing, are now willing to cover longer distances through Swiggy. The gourmet vertical ensures high serviceability by covering up to 12-20 km.

"It was not easy for somebody to imagine five years back to open up just a salad joint with a menu focusing on distinct salads, for example," Kapoor said.

"However, post-Covid, there are certain types of expenses and experiences the consumer really wants ... And, the higher end of the market is definitely showing overt signs of continuing to spend on experiences," he said.

Demand is also fueled by a large number of consumers who want great food, but don't want to go out or they may be having an event at home, he said.

Moreover, a lot of these cloud kitchens know how to run a kitchen well, but not a restaurant. We partner with these guys, and they are doing well," Kapoor said, adding that the commission which these sellers, operating in the premium space, pay is similar to the other sellers on the platform.

Swiggy offers a separate page for gourmet brands with information on menus, including specific curation on the offer zone. "This allows our premium customers to have easy access to premium options."

For brands, it helps them to showcase their high-end offerings and reach a larger audience, thereby increasing their visibility and sales potential, he said.

Swiggy Gourmet plans to leverage cross-pollination with other verticals, such as 'Insanely Good' essential delivery service, to capture premium target groups.

"This strategy will help the platform differentiate itself from competitors and offer a unique and diverse range of food options that are currently not available in the market," said Kapoor.

There are also plans to add 10-15 more cities to the Swiggy gourmet business, in addition to expanding in the existing markets.

With that, and forecast of gourmet food becoming an even stronger trend, Kapoor expects the vertical to clock two times growth within the next two years.

Swiggy’s attempt at premiumisation may be due to its core business not growing as fast as estimated.

Sriharsha Majety, chief executive officer and co-founder of Swiggy, had earlier this year told employees that the growth rate for the food delivery business—for Swiggy and its peers—has slowed, versus its own projections.

However, the company would continue to explore new business opportunities if they demonstrate the right product-market fit, he had said.

Prosus-backed Swiggy's focus on gourmet food delivery also comes close on the heels of the foodtech decacorn shutting its gourmet grocery delivery vertical—Handpicked.

This vertical was Swiggy's attempt at delivering premium-only grocery items that are rarely available, such as Coca-Cola's global offering: Cherry Cola. But Swiggy had to shut shop just six months after running an invite-only pilot in Bengaluru and Hyderabad, as it failed to yield results and also to reduce the firm's overall costs.

Currently, the gourmet vertical accounts for 4-5% of total orders on Swiggy. The average order value for Swiggy Gourmet is 1.5 times the platform average, Kapoor said. He expects a higher margin on gourmet and premium food items, and a more upscale customer base willing to spend more on orders would help Swiggy sustain its growth.

In FY22, the online food ordering and delivery platform saw its loss more than double, even as its revenue grew over twofold. The net loss of the foodtech unicorn widened to Rs 3,629 crore in the financial year ended March 2022, against a loss of Rs 1,617 crore a year ago, weighed down by a spike in expenditure, according to its regulatory filing.

Swiggy, which is competing fiercely against Zomato Ltd., saw its revenue jump 2.2 times to Rs 5,705 crore in FY22, as compared with Rs 2,547 crore in FY21.

Its total expenses shot up to Rs 9,748.7 crore from Rs 4,292.8 crore a year ago, primarily due to rise in outsourcing support cost and establishment of procurement centers or dark stores. The company’s advertisement and promotion cost touched a record high of Rs 1,848.7 crore in FY22, up 300%.

At a $10.7 billion valuation, the unlisted company last raised funding of $700 million in a financing round in January last year, led by Invesco. In total, the nine-year-old firm has raised $3.6 billion in funding over 16 rounds.