Next 500 towns to be key growth drivers in the long run: Swiggy

The food aggregator's revenue from adjacent services is expected to be 50% over next 3-4 years from 25% now, says ICICI Securities report based on talks with Swiggy CFO Rahul Bothra

Even as restaurants complain that aggregators are charging high commissions, growth expectation in the near term is expected to be around 30-40 per cent for food aggregators, said a report. In the case of Swiggy, revenue from adjacent services is expected to be 50 per cent over the next 3-4 years from 25 per cent currently, said an ICICI Securities report based on discussion with Swiggy CFO, Rahul Bothra.

The company also believes that though near-term growth will come from its presence in top metros, long-term growth will come from the next 500 towns and since the penetration is low, the company does not see the need for hyper-discounting.

“Of the addressable market, Swiggy is of the view that a mere third is currently penetrated. The company looks forward to driving further penetration with investments. However, given the duopoly, management does not see the need for hyper-discounting. Since two-thirds of restaurants are unorganised and there is high churn among them,” said Sudheer Guntupalli, Manoj Menon and Hardik Sangani of ICICI Securities based on interaction with Bothra, and global and domestic investors.

In terms of the non-food delivery segments' contribution to the company’s revenue Swiggy expects their share to go up to 50 per cent in the next 3-4 years based on strong traction it sees in Super Daily, Instamart and Genie.

In the Instamart segment the company has reduced the delivery time from the earlier 30-45 minutes to 15-30 minutes. “Swiggy intends to replicate the ‘mom and pop’ purchase behaviour involving regular top-up purchases. Over time, the company expects to have a low AOV (about $7-9), but high frequency of purchases (4-5 times per month),” said the report.

A few days back, during its earning call, Masayoshi Son of Softbank had shared details about the strong growth at Swiggy. He had said the firm has 120,000 partner restaurants and 1.5 million orders per day serviced by 200,000 drivers. “The number of orders per day has increased by about 2.5 times in one year, revenue has increased by 2.8 times in one year,” he had said. Recently Softbank led a $1.26 billion investment into Swiggy, taking its valuation to over $5 billion.

The report also said the company does not see any issue with restaurants and Bothra said 99 per cent of restaurant partners were happy with aggregators. “Swiggy indicated that about 99 per cent of restaurant partners are happy with aggregators and see great value in the delivery services provided versus commissions charged. Bothra said that comparing the aggregator take rates in India with those of China is misleading given the differential supply dynamic. When benchmarked against Western countries, the company sees Indian take rates to be relatively low and accordingly sustainable,” said the report.