Stand and deliver: Zomato and Swiggy want to eat each other’s lunch

It’s lunchtime at Aranyas, a popular eatery in Dhanbad, the coal-rich city in Jharkhand. But while just a few tables are occupied, orders are still being punched in and flying out, courtesy the swarm of the delivery personnel. Clad in either crimson or orange, they wait impatiently at the service counter.

Across the city—at traffic signals and outside the many residential townships—the procession of crimson and orange never ends. This is a marked change for Dhanbad, a city that, until recently, frowned upon eating out, forget ordering in. And with food delivery becoming the new norm, many small, unglamorous, delivery-only dhabas have mushroomed.

Repetition of the scene

In Patna, the capital of neighboring Bihar, this scene repeats. This, too, is a relatively recent phenomenon. As recently as the summer of 2018, food delivery wasn’t this common in eastern India, with Kolkata being the exception.

But it isn’t just eastern India. Cities such as Kanpur, Kota, and Thrissur tell a similar story. Of the blitzscaling by Zomato and Swiggy, the two biggest players in India’s food-tech space. While Swiggy has expanded its food delivery business to 145 cities (as of 7 May) from a modest 8 cities in October 2017, Zomato is now delivering food in nearly 250 cities, up from 17 cities less than a year ago.

As the two food tech giants expand, they’re finding happy hunting grounds further afield from India’s large metros. Kota, for example, with a population of around one million, is one of the fastest emerging cities for both companies. Largely due to its student population. Ditto for Manipal says Swiggy COO Vivek Sunder. Bengaluru-headquartered Swiggy has dominated the south since it began operations in 2014.

In his blog declaring the annual report for the year ended March 2019, Zomato CEO Deepinder Goyal painted a similar picture: 70% of our regular users in Kolhapur had never tried food delivery in their life (even over a phone call), he wrote. Gurugram-based Zomato, which started deliveries in 2015, has always been king in the north.

With both companies fast expanding to cover every Indian city and town worth it’s salt in the country, it isn’t surprising that Goyal believes food delivery in India will overtake e-commerce soon. But as the tentacles of the two food tech juggernauts continue their unceasing reach, encroaching on each other’s turf is inevitable. Each has its own approach it believes will give it an edge. But who will upstage the other?

Thinning the field

Even as the Indian food delivery space expanded over the last half-decade, it has simultaneously consolidated. According to a 2016 Bloomberg report, more than 400 Indian food delivery apps started between 2013 and 2016. Most of these have since shut shop or been acquired by bigger fish.

Even those who survived have struggled. Foodpanda, once the poster child of Indian food delivery, changed hands several times until homegrown cab-aggregator Ola finally bought it in December 2017.

Zomato and Swiggy, however, weathered the storm, emerging stronger and helping grow the food retail service market. India’s online food delivery market, valued at Rs 4,558 crore (~$652 million) in 2017, is expected to grow at a compound annual growth rate of ~38.08% from 2018 to 2023, according to research firm Research on Global Markets.

“If you look at other large or mature markets, food tech is largely a two or three-player space. Whether it is China, Europe or the US, there are two to three big players,” says an executive from one of the large investors in Indian food tech. He requested anonymity as he is not authorized to speak with the media.

The reason for this is simple—food delivery businesses need scale to become financially viable. The food tech graveyard is filled with the corpses of companies that couldn’t scale. It is, therefore, not possible to have more than two or three dominant players in the space. In China, for example, the $35 billion delivery market is a tug-of-war between Meituan and Alibaba Group Holding Ltd.