India’s Food Delivery Apps Navigate Discounts, Losses In Race For Customers

Discounts lured Karthik Yelchuru to Foodpanda. “I ordered till there were huge discounts, then I stopped,” said the engineer at a Bengaluru-based software startup. “They still have good deals but I’m more comfortable with Swiggy or Zomato.”

Yelchuru’s preferences reflects how India’s restaurant search and food delivery companies have fared. Swiggy and Zomato dominate despite charging for delivery. And Ola-owned Foodpanda and UberEats, operated by its ride-hailing peer Uber Technologies, are trying to catch up.

Swiggy, Foodpanda and Zomato have spent nearly half a billion dollars over the past two years on discounts, cashbacks and other offers to lure customers. Deep discounting meant they reported cumulative losses worth Rs 731 crore for the year ended March 2018 against Rs 640 crore in the previous fiscal, according to filings made with the registrar of companies and reviewed by BloombergQuint.

Swiggy's losses rose the most as it doubled down on expansion to extend its lead against Zomato and other peers. Swiggy, which is India’s largest online food venture—and a unicorn—doesn't have a monetisation model like Zomato that lists advertisements on its discovery platform.

At stake is a slice of the market that’s expected to quadruple to $2.5 billion by 2021, according to market research firm RedSeer Consulting. More so with growing smartphone penetration as data prices have plummeted in the world’s second-largest telecom market.

Investors continue to plough money. Swiggy and its older peer Zomato raised nearly $2 billion over the past year, with the former garnering more than half of it. Foodpanda committed an investment of $200 million to scale up operations.

And there’s been a shift towards cash generation. What’s working for Zomato is its subscription services such as Zomato Gold—launched in November 2017—and advertisements. It also reduced cash burn to $11 million from $15 million. Swiggy followed and introduced its subscription model, Swiggy Super, in July 2018 besides levying delivery fee which Foodpanda also imposes.

“Zomato and Swiggy have been able to reach a point where they can charge for delivery and packaging and aren’t just there for discounting,” said Satish Meena, a New-Delhi based analyst at Forrester Research. “When you’re able to attract audience just by discounting, it can’t work for the long term.”

Focus on generating cash delivered results. Revenue of the three firms nearly doubled to Rs 997 crore in the year ended March 2018.

Swiggy has also expanded to deliver fruits and vegetables, babycare and health products from kirana stores and supermarkets. Meena said the companies will diversify into other offerings as they have the fleet on the ground.

Incentives helped Foodpanda boost monthly orders from around 45,000 to nearly 200,000-300,000 between September to November, according to estimates by Forrester Research. But Swiggy and Zomato still clocked twice as much.

Zomato and Swiggy account for nearly 45 million of the 55 million monthly orders placed through apps.

UberEats may have an edge by clocking nearly 100,000 daily orders more than Foodpanda, said Meena. “UberEats is doing a patient play. They’re slowly trying to occupy the customer mindshare by focusing on snacks and meals,” he said, adding that even their collection of restaurants is less.

Expenses are expected to rise though. And discounting isn’t also completely off. Zomato, Foodpanda and Uber Eats still offer up to 50 percent discounts when BloombergQuint last checked.

Operational expenses of all the three firms rose by over 60 percent for the year ended March 2018, with Swiggy emerging as the top spender at Rs 865 crore. Zomato and Foodpanda followed.

Meena expects a near-threefold rise in expenses in the ongoing fiscal due to higher delivery costs and greater discounting. Customers like Yelchuru will continue to hunt for deals.

“If it’s dinner, I check on Zomato and Swiggy for products from the same restaurant,” he said. “I order from wherever I get a better deal.”