Daybreak - Growth? ✓ Convenience?✓ Happy delivery partners? Swiggy's walking a tightrope

Episode Date: November 7, 2023

It has taken Swiggy almost ten years and a whole lot of strategically planned moves to become the indispensable app that it is for us today.But decisive moment for the delivery giant came three years ago in 2020 with the pandemic. Swiggy’s core food delivery business took quite the hit . It had no choice but to adapt quickly and branch out. It decided to build on its delivery experience and launched Instamart for groceries and Swiggy Genie for intra-city couriers.The company is now valued at just under $8 billion dollars and has seen its revenue double to almost $600 million in the year ended March 2022. Putting itself on the fast lane to growth while delivering  convenience to the urban consumer has really worked out for the company. Or at least so it seems.Because in doing all of this, Swiggy might have forgotten the most important part of the equation- its 350,000 delivery partners.Tune in.Recommended background read:How Zomato, Swiggy, and Co can refill their delivery-rider tankDaybreak is produced from the newsroom of The Ken, India’s first subscriber-only business news platform. Subscribe for more exclusive, deeply-reported, and analytical business stories.

Hi, this is Rohan Dharma Kumar. If you've heard any of the Ken's podcasts, you've probably heard me, my interruptions, my analogies, and my contrarian takes on most topics. And you might rightly be wondering why am I interrupting this episode too? It's for a special announcement. For the last few months, I and Sita Raman Ganeshan, my colleague and the Ken's deputy editor, have been working on an ambitious new podcast. It's called Intermission.

We want to tell the secret sauce stories of India's greatest companies. Stories of how they were born, how they fought to survive, how they build their organizations and culture, how they manage to innovate and thrive over decades, and most importantly, how they're poised today. To do that, Sita and I have been reading books, poring over reports, going through financial statements, digging up archives, and talking to dozens of people. And if that wasn't enough, we also decided to throw in video into the mix. Yes, you heard that right. Intermission has also had to find its footing in the world of multi-camera shoots in professional studios, laborious editing, and extensive post-production. Sita and I are still reeling from the intensity of our first studio recording.

Intermission launches on March 23rd. To get alert, as soon as we release our first video. episode, please follow intermission on Spotify and Apple Podcast or subscribe to the Ken's YouTube channel. You can find all of the links at the ken.com slash I am. With that, back to your episode. I've been Swiggy almost 10 years and a whole lot of strategically planned moves to become the indispensable app that it is for us today. You could call it peak urban convenience. But the A decisive moment for the delivery giant came three years ago in 2020 with the pandemic.

Swiggy's core food delivery business took quite the hit. It had no choice but to adapt quickly and branch out. But by this time though, it had already perfected the basics, which was it knew exactly how to take food from point A to point B. So, it decided why not build on it and come up with something more? Groceries and couriers, which we now know, as Instamart and Swiggy Jeannie. Cut to now, the company is valued at around $8 billion.

It's seen its revenue double to almost $600 million in the year that ended in March 2022. Swiggy Instamart, the grocery delivery arm has now 9 million users and is the company's second biggest moneymaker after food delivery. The courier service, Swiggyzini, has expanded to more than 60 cities around the country. So, putting itself on a fast lane to growth while delivering unmatched convenience to the urban consumer has really worked out for the company. Or at least so it seems. Because in doing all of this, Swiggy might have forgotten or, shall I say, even ignored the most important part of the

equation. It's 350,000 delivery partners who are quite literally the backbone of their entire business. When it diversified after 2020, on paper, the company gave its partners three different services to choose from, food delivery, grocery delivery, and pick-up and drop services within cities. But is this choice really working in their favor? Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nicka Sharma, and I Don't Chase the New Cycle. Instead, thrice a week on Mondays, Wednesdays and Fridays, I will come to you with one business story that is worth understanding and worth your time.

Today is Wednesday, the 8th of November. Earlier this month, thousands of Swiggy delivery partners went on an indefinite strike in Mumbai. And there's nothing new about what they were protesting against. It was about the ever-declining payouts that Swiggy gives them for the orders that they fulfill. But as we all know, unfortunately for the workers, this is not the first time that they've had to hit the streets to demand better pay and at least some. employee benefits. The strike was only called off three days later when Swigy yielded to some of their

demands. So what really led to so much discontent? To understand it, we have to go back to the pandemic when Swiggy's main revenue stream, its food delivery business was badly affected. So it came up with a contingency plan and the idea was quite simple. Swiggy wanted to use its hyper-local delivery network to deliver more than just food. But, For delivery partners, this is exactly what led to the beginning of their troubles. In April 2020, Swiggy launched Swiggy Jeannie, the service that allows users to send and receive packages within a city. Instamart, the grocery delivery arm came five months later with the promise of delivery under 30 minutes. But in its quest to come up with more than just a food delivery app, Swiggy ignored an important aspect of its new plan.

the need to customize the way it was paying delivery partners for all three services, which were quite different from one another. Just try to think of it operationally, and you know what I'm talking about. Ready-made restaurant cooked food versus groceries versus courier delivery. Let's look at food delivery, for example. A customer can order food from a restaurant that's just around the corner to one that is as far as 15 kilometers away. Meanwhile, grocery orders are typically delivered within a 4-kilometer radius of Swiggy's warehouses.

And when it comes to Genie orders, the on-demand pickups and drops can be both short and long distances. Now, the peak timings for all these orders are also very different. Food delivery peaks during lunch and dinner hours and the demand for grocery orders is usually high during mornings and before dinner time. The demand for courier service, meanwhile, is a right. It varies throughout the day. So, while paying its delivery partners for each service, Swiggy should ideally be considering all these factors, right? From the time that it takes to fulfill an order,

to how far the partners have to go, and also how much they have to carry. The delivery partners protesting in Mumbai told my colleague the Ken reporter Shivani Worma that Swigy now gives them a base pay of just 15 rupees per grocery order. The company reduced this from 20 rupees eight months ago. For food orders, they had a base pay of 20 rupees, but Swigy has expanded the minimum deliveries range for the same base pay. This means that it asks the partners to cover longer distances while paying them just 20 rupees as the base.

Workers say that the payouts were better before the pandemic, but the base pay system now seems like a raw deal to them. They would earlier get 150 to 200 rupees for 20 kilometres of food deliveries. But a worker told Shivani that this has now come down to just 60 to 70 rupees. And for long-distance careers via Swiggy Jeannie, there is no base pay at all. Swiggy pays the partners just $4 to $6 per kilometer. The total payout for them is calculated on the distance covered. Workers in Mumbai are demanding to at least get $14 for a kilometer that they cover for Swiggy-Genny orders.

And low payouts are only one part of the process. problem. Stay tuned to find out more. With a valuation as high as $8 billion and an IPO plan for next year, Swiggy naturally wanted to pluck in profits. So it chose to focus on how to make this path to profitability convenient. But it seems like it did it only for itself and its customers. A former senior executive in the food tech industry told again that one single platform for food and groceries made sense for Swiggy as it makes it easier to drive traffic. But it doesn't make the job easy from the delivery standpoint. Handling multiple orders of food and groceries eventually became a hassle for delivery partners.

Consider something as basic as the size of the delivery bag. The Swiggy bags that workers get from the company to deliver food doesn't always work when they're delivering groceries because of the quantity of groceries. They can be quite huge. Imagine 5 kilos of onions, potatoes, milk, bread and whatnot. Initially, though, the average order value for grocery orders was small for Swiggy, almost equal to food orders. But if a user is ordering groceries for a week, how will the partner carry it in the same food delivery bag? Besides, Swiggy would earlier pay by the weight of each order for high volume grocery orders. It has now stopped giving that additional amount.

no matter how heavy the order is. Plus, delivery partners have to pay Swiggy penalties if an item goes missing. And what makes this whole situation even more complicated is the problem of too many riders and too few orders. Swiggy lets food delivery partners take up grocery and courier orders as well. This affects the other delivery partners who are looking for just grocery or courier orders. One partner told Swiggy that they lose about 10% of Instamot orders to the food delivery partners. And you can't even blame the food delivery riders for this.

They too have no choice but to take up the orders. Because long-distance deliveries and declining base pay in food delivery is not enough for them to sustain. But for all the convenience that Swiggy chose for itself and its customers, at the cost of its delivery partners, you would think that at least it is making a profit from all these services, right? Well, it turns out it is not. Stick around for the next segment to find out why. In the decade or so since it was born, Swiggy may have multiplied its profits,

but its losses are just growing in size. So much so that the losses for the company widened by 80% to more than $500 million in FY 2023. Even its core food delivery business only became profitable this year in March. Swiggy's CEO, Sri Harsham Majiti, had said earlier this year that he next aims to make profits in the grocery vertical. But it's actually not as easy as making profits in the food delivery segment. A food tech executive that Chivani spoke to said, and I'm quoting him, that's the beauty of that business. There is absolutely no cost that you are incurring before delivery.

the food order. And the margin from the restaurants is also between 20 to 25%. End quote. But for delivering groceries, the company incurs layers of costs before reaching the last mile. For starters, a lot of the FMCG brands have single-digit margins. So getting a 20% margin is quite the task. And then there are costs involving warehousing, inventory, packaging, just to name a few. So, when a company like Swiggy starts grocery delivery services in an area, it first hires a lot of delivery partners. It only gets a clear picture of its margins over time once it is able to determine the

demand in that area and the average value of orders. And when it gets that clarity, it makes adjustments to get sustainable margins. And the easiest way to do that, apparently, is to reduce rider payouts. In fact, Shivani pointed this out in her report. I'm not sure if you've noticed this yourself. There is no option on the platform for customers to even tip delivery partners for Instamart and Genie orders. Those delivering via Swiggini, they are not even compensated to cover the first mile, which is the distance covered till the pickup location. But for the company, it seems that if it decides to give its delivery partners more,

its business will stop making sense. And at the end of the day, it does all boil down to profits. But to achieve the aim of keeping its food vertical profitable and eventually turn profits in the other two verticals, Swiggy has left its delivery partners in the lurch. They now face the dilemma of choosing between food delivery, Instamort or Swiggyzini, or a combination of the two or all three of them. And forget profits for a second.

Even for all its services to run smoothly, Swiggy cannot afford such a huge pool of dissatisfied workers who are the backbone of their entire business to keep hitting the road. Daybreak is produced from the Newsroom of the Ken, India's first subscriber-focused business news platform. What you're listening to is just a small slice of our subscriber-only offerings. A full subscription unlogs daily long-form feature stories, newsletters, subscribe-only apps and podcast extras. Head to the ken.com, that is dh-he-k-en-com, and click on the red subscribe button on the top of the website.

I am Snekda Sharma, your host. The script for today's episode was written by Dikshamunjal and the episode was edited by my colleague Rajiv Sien.