Daybreak - Zomato has an edge over Swiggy. Here's why

Episode Date: July 3, 2023

On Thursday, Kotak Institutional Equities, released a note and turns out, Zomato managed to maintain its lead over Swiggy with a 55% market share in the year 2022. Swiggy is at 45%.Swiggy and Zomato have been constantly win the bigger share in India’s $5 billion food delivery market. But it was Swiggy that had the portion share just three years ago. Inherently, both the food delivery companies are quite different from each other. And it is this difference that's been giving Zomato an edge lately.Recommended reading:Why Swiggy is building a Shopify for local brandsDaybreak 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 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 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. At the end of last year, my colleague the Ken CEO, Praveen Gopal-Krishnan, had made a set of predictions for the year 2023.

And one of them was about Zomato. He'd said that this year was going to be a little. landmark year for the food tech giant. He said that by the end of the year, Zumato will have grown its revenue significantly, expanded its market share and its food business will be profitable. While we have to wait for the end of the year to actually see if he was right or not, I can't help but notice that at least one part of what he said about Zomato's market share is turning out to be quite true so far. Now, we know how Swiggy and Zomato have been constantly trying to outdo each other to increase their share in India's $5 billion food delivery market.

In 2020, Swiggy was the king, with a 52% market share. But the next year, in 2021, it fell to 47%. This year, though, started on a not-so-great note for Zamato when it lost another co-founder, Gunjan Patidhar, who was the company's chief technology officer. And then recently we saw the whole controversy when Zomato made quite the blunder in an advertisement that was supposed to highlight its plastic neutral promise. Zomato was accused of being cast blind and was even served a notice by the National Commission of Schedule Custs. But on Thursday, Kotak Institutional Equities released a note and it turns out that Zomato has managed to maintain its lead over Swiggy with a 55% market share in the year 2022.

Swiggy is at 45%. Zomato's gross merchandise value for its food delivery business came in at $3.2 billion. This is up by 26% year on year. So what is Zomato doing right? Over the last couple of years, it's been eliminating distractions and focusing more sharply on its core business.

It has also killed things that restaurants dislike. For example, Zomato Gold, which became Zomato Pro later. And all of these things have helped Zomato. Yet, there is a common perception that Swiggy does everything better comparatively. While that is debatable, there is one thing. Zomato and Swiggy, despite being rivals, are actually inherently different companies with their own strengths and weaknesses. And there's enough reason to think that Zomato does.

have an upper hand, at least in the short to medium term. Welcome to Daybreak, a business podcast from the Ken. I'm your host, Nickda Sharma, and I don't chase the news 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 Monday, the 3rd of July. Let's begin by looking at the things that Zomato has done really well. But before that, let's get one thing out of the way.

The fact that the Zomato ad was problematic and cast-test. The company took it down and apologized for it. But see, we also can't take away from the fact that Zomato's marketing and communication has mostly been on point so far. So many of its tweets and replies often go viral. In fact, many companies try to copy Zomato, but they stop when things get a bit uncomfortable. Zomato's not like that. It hasn't been afraid to do the right thing, even if it means taking on a considerable political risk.

Remember that incident when a customer exposed their own bigotry by tweeting that they had cancelled their order because the Zomato delivery guy was a Muslim? The company refused to replace him and also declined to refund the order. And then they tweeted saying food does not have a religion. It is a religion. Now, if we look at the business side of things, it is a whole different story. Zomato has been making mistakes and missteps for years now. Why don't we look at a few examples? First, there's Zomato Gold, its flagship loyalty program which it launched in 2017.

By 2022, it had been scaled back, rebranded and then scaled back again and then finally shuttered. Zomato also expanded internationally into multiple countries. in the Middle East, Europe and Africa. All of those businesses are dead now. When the pandemic struck, it got into grocery delivery. That is also dead now. It also created a nutrition supplement business.

Again, dead. It's losing its co-founders rapidly. And then there's the blanket acquisition, which has raised many questions. That is why, for the last five years, at least from a business point of view, Zomato has looked like a confused, indisciplined company. But there's one thing that Zomato does really well that makes up for all its deficiencies.

And Praveen says that this is going to play a big part in their success this year. You see, at its core, Zomato is a consumer-centric product company. Companies that build consumer products do not necessarily build consumer first. And that is okay. There is no rule that says that product companies that create and iterate starting with the user are going to be more successful than product companies that try to optimize something else. Apple is a consumer product company, but they don't necessarily build and iterate by starting with the user's needs.

Look at Hot Star. It is a content-first product company. Their strategic product decisions are driven by their content. But Somato starts with. with its users, and that drives everything else. Coming up next, we delve a little more into what makes Zomato and Swiggy so different from each other. If you talk to people who work at Zomato, they'll tell you that how even now, their CEO, Dipindar Goil, is deeply involved with everything on the consumer side of things,

for example, the mobile apps and the website. Mostly, this is because Zomato started as a consumer app company which listed menus by restaurants. The logistic part came much later and it didn't even build these capabilities in-house. It had to acquire a company to do it. And because of this, Zomato is able to launch products that appeal to its users. Think of Zomato's intercity delivery which lets you order food from another city and get it delivered the next day. Zomato starts by building products that it knows that its users will love and then it figures out everything else from there. Swiki, on the other hand, is a logistics company through and through.

They make decisions on what to build next by optimizing their core capability, which is logistics. Swiki says, okay, so we have a huge fleet to deliver food and we have excess capacity. What else can we do? Let us deliver groceries. After they optimise that, they move on to something more complicated. Example, fresh meat delivery. Then they move on to small stores and build something like Swiggy Minis. And then a daily subscription product.

That is their approach. It is more boring, but it is effective. Think of the last time that Swiggy launched something and it made you wonder, how on earth are they doing it? It doesn't really happen, right? but it is a very deliberate, slow, iterative way to build product after product on top of their logistics. Zumato builds products. Swiggy builds on top of its platform.

This is what makes them different. Swiggy is building and expanding on its platform as a private company. And Zomato is building products in the glare of the public markets. And this balance is what Provene thinks. gives Zumato the upper hand. It brings the much-needed discipline to the company, and this raises the bar for decision-making. Swiggy, on the other hand,

is choosing to build business after business to expand their total addressable market to appease investors. While this may work out in the long run, they will probably make a few mistakes along the way. But it won't be readily apparent because they lack the feedback looom. Oops, that's the matter has.

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.