Swiggy, which is in the midst of raising a larger funding round, said on Thursday it will invest $700 million in its express grocery delivery service Instamart as it looks to double down on non-food delivery categories.
The move signals Swiggy’s aim to grow its quick-commerce business amid intensifying competition in the 10-minute grocery delivery space. Grofers, backed by Swiggy’s arch rival Zomato, had pivoted to a 10-minute grocery delivery model in August.
Swiggy also faces competition from e-grocery startup Zepto that launched this year and is delivering express groceries in Swiggy’s home market of Bengaluru, as well as in Mumbai and New Delhi.
Swiggy’s Instamart service, which is currently operational in 18 cities across India, delivers more than one million orders per week. It plans to make deliveries across locations in 15 minutes by January through ramping up its network of dark stores.
Dark stores are physical warehouses that cater only to online orders. Swiggy partners with store owners to set up dedicated dark stores within a city for its Instamart business.
“We are at the place where we feel comfortable making a huge commitment only on the back of convenience grocery. We recently touched two million transacting users and that is a drop in the ocean compared to the target segment available for this category (of express groceries). For us, the idea is to continue the path of expanding into more geographies as well as inside existing geographies, as demand builds up,” Sriharsha Majety, co-founder and chief executive, said in an interview.
“Customer retention for Instamart is showing a smile curve where we saw an early dip but now, we see it growing with better customer experience and word of mouth. The (express grocery) category is still in the early stages and we expect 10-15x growth for the overall category in the next three to four years,” Majety said.
In just 15 months of launch, Instamart is gearing up towards posting $1 billion in annualized gross merchandise value (GMV) over the next three quarters. In comparison, Swiggy’s core food delivery business clocks $3 billion in annualized GMV run rate, Majety said.
Bengaluru-based Swiggy, which raised $1.25 billion in July at a valuation of $5.5 billion, has been actively diversifying itself into non-food delivery categories via offerings such as quick-commerce (Instamart), hyperlocal-based task management service (Swiggy Genie) as well as subscription-based grocery service (SuprDaily). These non-food delivery businesses currently contribute a quarter of Swiggy’s overall revenues.
Majety said as the new businesses pick up pace, the share of food delivery revenues may reduce.
“I think the skew will keep evolving. Food deliveries are growing some more, but newer businesses will grow bigger and faster. Over time, if some of the experiments do well, I do think that food delivery share will not be what it is today. So, directionally, we think that food delivery, given how high a percentage it is, will go down,” said Majety.
Mint reported on Thursday that Swiggy is nearing close of its $700 million fresh fundraise at a potential valuation of $10 billion to $11 billion. The deal is expected to close over the next 2-4 weeks, and will see new investor Invesco leading the round.
“We are continuously evaluating M&A (merger and acquisition) opportunities as a company alongside building our own. I think if there is a company purely innovating on behalf of consumers and doing things differently than us, or if we feel like it’s an opportunity to build an even better business, then we will definitely be open (to acquiring),” Majety said on acquisitions to grow Instamart.
Swiggy’s focus on express and convenience-based grocery delivery comes amid Zomato recently abandoning its e-grocery plans. For Swiggy, its active diversification towards newer categories, as well as early success for Instamart, is driving investor interest in the company.
Source: Mint