Swiggy raises $15 million funding from Bessemer

Alnoor Peermohamed | Bengaluru Sep 19, 2016 03:40 PM IST
Bengaluru-based food ordering and delivery service firm Swiggy says it has raised $15 million (around Rs 100 crore) in fresh funding led by Bessemer Venture Partners, the first indication of returning normalcy in India's food tech sector that saw multiple shutdowns and a funding drought over the past 12 months.

Swiggy will deploy the fresh capital to grow market share, but not by running massive advertising campaigns or offering discounts to customers. It says users in large Indian metros are finally ordering food online as part of a behavioural change, than just for the convenience or low cost of such services.

The firm currently operates in seven cities and says it's already profitable from a unit economics perspective in Hyderabad and Bengaluru, two of the six big markets for the country's e-commerce sector. Over the next two years, the company plans to replicate this success across all the cities in which it is present.

"Swiggy just needs to scale up to make money on a unit economics level. We've already done all of that in Bengaluru and Hyderabad where we make money on every delivery. Every city needs a 9-15 month timeframe to become EBITA positive," said Sriharsha Majety, co-founder and chief executive of Swiggy.

Instead of spreading itself too thin and entering new cities, Swiggy wants to grow more deeply into the seven cities it's already present in. Currently, the company is working on ways to improve the frequency of order bookings by a customer on its platform from 4-5 times a month on average closer to 15 times.

Dazo, Peeto, TinyOwl, SpoonJoy and several other have shut operations. From a peak of around 100 food tech companies, India currently has few dozen such companies. Only few big names such as Swiggy, FoodPanda, Zomato and Freshmenu remain on the growth track, but even here sensibilities are back in with players not simply splurging to grab each other's market share at the cost of customer loyalty.

The food and beverage sector which traditionally enjoys margins as much as 100% is still cut throat for food tech companies, who have to pay delivery agents while also absorbing huge marketing costs.

Competition from e-commerce companies along with a perennial problem of underutilisation of staff during non-peak hours killed several FoodTech startups last year. Swiggy is exploring other models to improve its efficiency.

"We already have a part-time delivery agent model. This is a problem that can be solved partly by fleet management and technology. That said will explore multiple opportunities whether it is doing deliveries for others or partnering with others to do our deliveries," added Majety.

While Swiggy is continually working to squeeze the maximum margins out of restaurants, it says it has to wait to hit a sweet spot with each of them individually. As it is able to contribute more business, its leverage to demand higher margins will go up. This ultimately is tied to being able to get more people to use its service.
"There is a healthy percentage restaurants can contribute as we drive more and more of their business. If we're able to contribute more to a restaurant's topline, we're able to have a happy conversations with them to pay us more. Our commission number go up to 30% in some cases," said Majety. 

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