Swiggy IPO: Can Swiggy Enter the Fast Commerce Market?

How does a fast commerce business work? And what is the prospect for players like Swiggy, which has put its shares up for sale to retail investors this week?

In the food delivery and fast commerce space, Swiggy generates revenue through (i) commissions collected from restaurants/merchant partners on sales made through the Swiggy app; (ii) advertising revenue from restaurants/trading partners/brand partners (providing advertising/better placement of a product or service in the application when searching for customers); (iii) fees charged to users and delivery partners for use of the technology platform; and (iv) subscription revenue under the Swiggy One membership program. The main factors here are (i) and (ii).

One of the differences between the fast commerce business and food delivery is that Swiggy incurs costs by investing in supply chain and distribution networks spanning warehouses and dark stores to provide fulfillment services to consumer brands and franchisees (distributors) to ensure food and grocery delivery nutrition. other products.

In a B2B supply chain business, the business model is different, with the bulk of revenue currently coming from selling goods to wholesalers and retailers and the balance from fulfillment services, while the company intends to increase the service component from here with a focus on profit. .

Much of Swiggy’s success depends on increasing the number of users/subscribers, increasing their engagement/transactions with the current offerings on the Swiggy app, and monetizing this user base with new innovative offerings and capturing a larger share from the consumers’ wallet. Expanding the food delivery customer base to the fast commerce customer is one such innovative offering that is seeing great success. Greater customer engagement also means more advertising revenue, which can further fuel growth. Swiggy had 14.29 million monthly transaction users (MTU) in FY24, up from 10.26 million in FY22.

According to an RHP report quoting Redseer Strategy Consultants, the online food delivery market in India stood at ₹60,000 crore or $7.1 billion in FY23 with potential to grow at a CAGR of about 20 percent to ₹1.5 crore by FY28. Players like Swiggy and Zomato can grow at or even exceed industry growth rates if they perform well.

“Stunningly high CAGR potential”

At the same time, it estimates the potential for an even more staggeringly high CAGR of 60-80 percent in the flash trade sector (from ₹22,400 crore in FY23) till FY28.

It is unclear whether Swiggy or Zomato will be able to grow at the same or faster industry growth rates in this segment given the presence of new competitors like Zepto, BigBasket and possibly aggressive Amazon and Reliance. However, Swiggy is well positioned to take advantage of this huge opportunity and fast commerce is one of the aspects that will answer much of the question of how much growth Swiggy can generate. About 45 percent of the proceeds from the IPO are earmarked for investments directly related to the fast-commerce business with a company planning expansion number of dark stores both in existing and new cities.

Could there be Swiggy? one of the mega winners? This is a $10 billion (₹87,000 crore) question that investors will have to reckon with before Swiggy IPO opens this week November 8. Swiggy’s ₹11,327 crore IPO (of which the new issue is worth ₹4,499 crore) values ​​the company at a market capitalization of ₹87,000 crore and an enterprise value (EV) of ₹78,000 crore. And post the completion of the IPO, the intense yet cut-throat competition between Swiggy and Zomato will spill over into the capital markets.