Daybreak - The run-up to the IPO is changing Swiggy as we know it

Episode Date: March 15, 2024

Swiggy has always been proud of the culture of innovation that it has fostered over the years for its employees. In fact, it is this very approach that helped it achieve the coveted unicorn status.But with the IPO scheduled for this year and its pursuit to profitability, innovation is no longer being encouraged. It has become way more challenging for newer projects to take off. And though it is natural for a company that is growing bigger to become more risk-averse, for Swiggy, this means a cultural shift that could change its very nature.Tune in.

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 Ramon 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 an alert as soon as we release our first episode,

please follow Intermission on Spotify and Apple Podcasts 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. A few days ago, Swiggy got some great news when Barron Capital Group, which is a US-based asset management company, increased the value of its stake in Swiggy, which means Swicky's valuation now stands at over $12 billion. Now, this comes at a great time for the food delivery giant

because this year it is finally going for its much-awaited IPO. The company wants to raise more than a billion dollars through its public offering. Now, you remember how I told you in one of the older episodes of Daybreak, how prepping for an IPO is quite like getting your house in order before you. through a dinner party. You want your place to look beautiful, you want all your dishes to be plated well, you know what I'm saying. The idea is to leave your guests impressed. Swiggy has been doing the same. How? For starters, Swiggy employees are working extra hours even on weekends. That too with budget constraints. And the company's leadership, meanwhile, is adopting a more hands-on approach with its

restaurant partners. All of this means that Swiggy employees have been working under extra pressure. Now, you may say that it all makes sense because the common goal is to reach profitability. But the question is, at what cost? What if all these compromises are changing the very nature of the company's core, the very thing that got it to where it is today? You know what I'm talking about, right? I'm talking about innovation because it was innovation that transformed Swiggy from a disruptive startup to a food tech giant. Welcome to Daybreak, a business podcast from the Ken. I'm your host Nick Dha 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 Friday the 15th of March. So, Swigy has always been proud of the culture of innovation that it has fostered over the years for its employees. The company spokesperson even told my colleague Gorav Bargur, and I'm quoting, If we don't try things that others don't, we will never know what the customer needs. End quote. Another former company executive talked to us about how the founders want employees to be explorers. They said it was very rare to hear Srihavis.

Harsham Majeti, one of Swiggy's founders, to dissuade you from showing initiative. Even if he doesn't believe in you, he will not say don't do it. He will say, try it out. A few years ago, Majeti himself had said in an interview that Swiggy has a tinkering culture and a build bias. And the spokesperson told us that it was this very approach that helped the company adopt a suitable business model and save millions on acquisition companies. which is not far from the truth. Look at Instamot, its grocery delivery arm. Majeti thinks right now it even has the potential to leave behind Swiggy's main food delivery business

in terms of success. And then there is also Swiggy's ad tech service, which I told you about in one of the previous episodes of Daybreak. It was all developed in-house despite major challenges. But lately, things have changed. Let's quickly look at what is going on on the other side. Swiggy stopped Super Daily, which was a subscription-based delivery service for milk and daily essentials. Then in January 2020, it shut down Swiggy meat, which was its marketplace for meat products.

Two months later, it also sold off access, which was its cloud kitchens as a service unit. And handpicked, its delivery service for imported and gourmet groceries did not. even go beyond pilot. So all this in the pursuit to profitability, you may think fair enough. But here's the thing, Swiggy's losses have only increased after it began doubling down on profitability. In the year that ended in March 23, it posted a loss of over $500 million, which was more than $30 million compared to three years ago. Its expenses also nearly doubled to over a billion and a half dollars during the same period. And its revenue went up by almost three times to over a billion dollars.

Stay tuned for more on this. Around six years ago, you could say that this culture of innovation at Swiggy was at its peak. It literally set up something called Swiggy Labs just for developing new products and features. It was basically a team of over 30 people across various functions like business, product and tech. A former company executive told us that it was an incubator of sorts whose mission was to create million dollar bets for Swiggy. Some of its initiatives included Swiggy Moments, which was a corporate gifting program. Then there was Swiggy Excel, which was a bulk order service for big deliveries.

Then there was another one called Drop It, which was a breakfast pre-order. service. But none of these really picked up. And this made Swiggy focus even more on becoming profitable. Now, all the new initiatives under the food delivery and Instamort business are closely scrutinized based on unit economics, which kind of discourages experimentation. So ideas that could have gotten the green flag earlier simply do not work anymore. And the ideas that do manage to manage to make it to the pilot stage are only run at a neighborhood scale to reduce the cost. One of the former executives told Ken that earlier, these kind of trials were carried out in an entire city or even statewide at times.

The other former executive also told us how projects that would have gotten at least six months leeway are now getting just one or two months. And that is because margins are being watched way more closely than ever in weekly. business review meetings. They said, and I'm quoting, business heads are being held accountable to the decimal, so they just don't want to take those risks. End quote. So launching any new project at Swiggy now is almost turning out to be a sort of a Sisyphian challenge. But projects that are already up and running do have some extra breeding space. Like Swiggy's brand marketplace called minis, its parcel delivery service called Jeannie, and also its high-quality grocery delivery

service called Insanely Good. Also, Swiggy's focus on using its resources with maximum efficiency has kind of backfired in some cases. For example, Swiggy's delivery operations, which are primarily shared across all of its services. Now, if you look at Zomato for comparison, it has a dedicated fleet for its grocery delivery arm, and it has been working out really well for Blinket. Plus, in terms of higher key, Swiggy is top-heavy. Even more now. More functions and leaders are now involved in decision-making, and because of this, what would earlier have been done quickly by a business head now requires coordination with multiple teams. In the end, here's the thing. Of course, the bigger a company grows,

the less agile it becomes. It becomes more risk-averse, and this is natural. But with Swiggy, it is changing the very nature of the company that we have known it to be so far. For good or for bad, only time is going to tell, I guess.

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 sample of our subscriber-only offerings. A full subscription unlocks daily long-form feature stories, newsletters, subscriber-only apps and podcast extras. Head to the ken.com and click on the red subscribe button on the top of the website. I am Snigda Sharma, your host, and today's episode was edited by my colleague Rajiv Sien.