Zomato, Swiggy, UberEats reduce discounts as food delivery market grows cold
BENGALURU| MUMBAI: The food delivery market is starting to show signs of slowdown after witnessing eighteen months of exponential growth in order numbers, according to multiple people aware of the development.
Across the sector, monthly growth has fallen to 1-2% between August and October, hurt by a slowdown in consumer spending, and as major players Zomato, Swiggyand UberEats reduced discounts and promotions, multiple investors and industry executives told ET.
In January, average daily orders were 1.82 million for the top three companies, but shot up to around 3 million in June, according to a report by RedSeer Consulting. ET has access to the report. Since then, however, the numbers have flattened to between 3.2 million and 3.4 million orders in October, according to investors, analysts and company executives.
Fluctuations in orders are now largely due to increased orders during weekends, discounts, city launches and growth driven by exclusive tieups. Food ordering also goes through seasonal changes and this is a period of dip typically, said sources. “For October, it was a 1-2% growth in order numbers because of festivals like Navratri, Dussehra and Diwali, but our business has been steadily growing before and after that,” a Zomato spokesperson said in an email.
Zomato said its number of orders per day stand at 1.25 million. Sources, which include investors and analysts, peg Swiggy’s numbers at between 1.4 and 1.6 million and UberEats at 0.4-0.6 million per day.
Swiggy and UberEats did not share official numbers.
All three players are expecting a surge in orders during the time of Christmas and New Year’s, followed by a weak January opening.
In a May 23 interview with ET, Swiggy chief operating officer Vivek Sunder said the company was trying to increase repeat orders from the top 50 million users in India.
Investors in the space have said that the addressable market has not grown too much since then. “If in one month, for instance, Swiggy does well, it is coming at the expense of taking that order away from others and not growing the market,” an investor with direct knowledge of the numbers told ET.
In instances where new customers do order, they are largely discount-driven, he added. A nationwide logout campaign led by restaurant associations against Zomato’s Gold product, which offers one meal free on another, may have also affected the company’s order numbers, an investor told ET. When ecommerce behemoth Amazon launches its food-delivery operations, it will also target the same set of customers.
A Swiggy spokesperson said that over the last one year the company has grown to more than 500 cities from 40 cities, even as restaurants on its platform have increased four-fold and delivery partners and transactions have at least doubled.
The company did not disclose specific order numbers, though.
At Swiggy, UberEats and Zomato, the focus is on cutting mounting losses and stepping up monetisation, even if that comes at the cost of slowing orders, said multiple people in the know of the matter.
UberEats has been in the market to offload its business to a strategic buyer. UberEats declined to comment.
CONTROLLING CASH BURN
Till September 2018, Swiggy clocked about 700,000 orders a day and doubled that number to about 1.5 million daily orders in October. Zomato, too, was aggressively spending on promotions and branding, and growing at an equally aggressive pace in the same period — doubling orders from 500,000 per day to 1.25 million per day.
Growth for both these companies was also in part driven by orders from smaller towns and cities.
Zomato, however, has more than halved its cash burn to under $20 million a month, from $45 million in March, investor InfoEdge said in a conference call last week. Investors in Swiggy, however, point out that cash burn in the food delivery business continues to be about $30-35 million, with an intent to progressively get it down.
“It’s time to step up monetisation avenues from restaurants and add more use cases for customers to transact on the platform,” one of the investors ET sourced data from said.
“They (Zomato) are cutting discounts and marketing on the bottom end. They are cutting misuse and abuse, like people breaking an order into 2-3 to get more discounts and just by doing that they are able to cut (cash) burn,” said Sanjeev Bikhchandani, cofounder of InfoEdge, said in a conference call with analysts.
In an interview with ET last week, Swiggy CEO Sriharsha Majety said that the food delivery category itself is witnessing a move towards profitability and better economics. “Funding is slowing down and there is pressure to cut back on burn so they can ride the consumption slowdown,” said a Mumbai-based investor whose portfolio includes a few early-stage food tech companies. He warned, however, that this slowdown would not only affect food tech, but also other sectors such as co-working and co-living.