Swiggy plans to win small markets after delivering success in big cities

To make operations more efficient, Swiggy has adopted what it calls satellite city approach
Food ordering and delivery platform Swiggy has come a long way since its launch in 2014. Starting from a single locality in Koramangala, Bengaluru, with seven delivery partners, today it is present in 44 cities with a network of 90,000-plus delivery partners. During the first three years of its launch, Swiggy rolled out services in seven metros. Post that it has scaled-up operations rapidly. Its strategy to first proof test markets, augment key processes and build up network capacity appears to be paying off. 

In the financial year (FY) 2018, Swiggy’s revenue grew to Rs 4.4 billion from Rs 1.3 billion in the previous year, according to company’s filings with the Registrar of Companies, sourced from business intelligence platform, Tofler. The company’s losses for the same period almost doubled to Rs 3.9 billion from Rs 2 billion in FY17. 

Swiggy claims its expansion has helped elevate the potential of online food category in the country with more than a 3x increase in revenue and order volumes in the last financial year. The company hopes to keep the growth momentum going as it looks to bolster its presence in tier II and tier III cities while deepening its reach in the existing markets. 

The question is, what are the key capabilities Swiggy needs to develop to ensure quicker penetration into smaller markets? More importantly, what are the factors it looks at to identify and evaluate potential new markets?

“Consumers across the country are the same — they want a superior and reliable food delivery experience,” says Vivek Sunder, chief operating officer, Swiggy. “As we go deeper into the country, the key to ensuring a consistent level of consumer experience lies in the granular understanding of each city’s food preferences, user segments, restaurants and developing logistics capability accordingly.”

The organisation has gone from launching in two cities a month earlier this year to rolling out services in one city every alternate day as of October 2018. Some of the new cities that the company has added this year include Ahmedabad, Jaipur, Chandigarh, Nagpur,  Coimbatore, Kochi, Guwahati, the student towns of Manipal, Bhubaneshwar and Puducherry. The company plans to double its presence to over 100 cities by February 2019. As Swiggy pursues hyper expansion, it is augmenting two key processes — training of key stakeholders and sustainable onboarding of restaurant partners.

It has beefed up development teams to build stronger content and delivery modules for its on-ground teams as well as its restaurant and delivery partners in the new cities. Convincing restaurant partners to use technology to streamline the delivery process — right from processing an order to reaching it to the consumer’s doorstep in top condition is a key starting point to ensure success in smaller cities. That would not only ensure easy consumer adoption, but it would also improve its margins and help run the kitchens better.

Swiggy has over 45,000 live restaurants. The team has already onboarded over 1,500 restaurant partners in the cities it has launched operations over the last six weeks alone. 

According to S Swaminathan, chief executive officer and co-founder, Hansa Cequity, restaurant aggregation is not difficult but monitoring quality is the key challenge. High attrition among delivery partners also needs to be tackled. He says that in newer markets, the issue of time-scarcity is not as high as in the metros which has led to huge demand of Swiggy-type services in the latter. Hence, it is important for players getting into such markets to explore new areas like business-to-business delivery or intra-city delivery of food experiences that smaller town consumers aspire to.

To make operations more efficient, Swiggy has adopted what it calls satellite city approach. Sunder explains each market has a main city/town and there would be other pockets or satellites around that market. This makes planning and distribution functions more efficient and result-oriented. For example, Pondicherry serves a satellite town for Chennai, Mysore for Bengaluru, Ludhiana for Chandigarh and Nashik for Mumbai. Being located in a satellite and servicing main towns nearby would help keep overhead costs under control.

Swiggy is also big on using data. In a digital age, it is easy to source and access data for remote markets at a click of a button. This data helps the team identify trends early and scale up to meet the new demands. For example, among newer cities, Swiggy saw demand growing multifold in Puducherry within the first week of launch. “This shows that there is a need for the convenience and reliability that Swiggy promises not just among consumers in metros but in tier II and III cities as well,” says Sunder.

Going forward, “the experience must move from ‘on-time’ delivery to delivering ‘real-time’ food experiences”. “One could also look at reaching out to distinct customer segments with technology being at the centre of such applications or platforms,” says Swaminathan.

So what will be that key differentiating factor going ahead?

Swaminathan hazards a guess: “Margin improvement could be a key area of focus as delivery alone cannot improve margins. The players in the segment could think of running their own kitchens for top customers where margins could be as high as 30-35 per cent. They also need to think of some differentiation — say an Amazon Prime-type loyalty programme with which they can offer experience-based differentiation of food.”

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