Updated: Jul 5, 2018
With the latest funding round of a $100 million and overall $250 million plus, its really interesting to note how a non profit making venture keeps raising funds. Maybe, one way to analyse is to look at the way their models have evolved.
When swiggy started, they were one of the few startups that had a measured approach to scale. They picked localities in Bangalore, built a decent scale and then went on to the next locality and then slowly to other cities. A model that was well appreciated at that time, though they kept loosing money all the way, either for building the brand by giving away freebies to users or most importantly their logistics / delivery side of things.
They had to do it because they are a food ordering platform, where you create demand from customers and supply the demand from the restaurants they onboard through their delivery model.
Lets look at their delivery model and see how it has evolved or impacting us.
Initially they started by hiring delivery staff on their roles, only for the data to throw out within a few months of operations that, these delivery folks were in utilization only in the peak hours of lunch and dinner. Most importantly this model helped them to build customer traction, as there was no minimum value for any order but a delivery fee or with a certain order value, the delivery was free. With this USP, you have to give it to them for making swiggy an household name now.
The delivery model has pivoted a few times till they arrived at what we know as the current model (Quora link that gives some options) where the delivery folks are paid per delivery plus incentives (this varies per location, so does the price and incentives) and looks like majority are not on their roles now.
This is where the things get really interesting. Over the years the burning question has been, how and when will they become profitable. Around 2015, there were rumors and some restaurateurs were open to admit that the rates on the swiggy platform was inflated to the level of the commissions they paid (20% plus in some cases), as the commissions they were paying was too high for them to manage their business.
But now, it seems ridiculously costly to order from them and we the public are probably not even aware of how much we are paying extra in the name of convenience and that Swiggy is the sole beneficiary in this game.
Lets take an example of couple of orders I had placed recently from the same restaurant and how things are panning out from a cost perspective.
The Restaurant in play here is A2B in Bhattrahalli,Bangalore, which is exactly 1 KM from my house in KR Puram.
The following is the picture of the bill when I picked the order from the restaurant. Highlighted are the prices including the packaging costs marked as “P” in the bill plus a cost for the carry bag.
The following are the screen shots from the Swiggy App for the same restaurant.
Marked are the prices of the dishes on the swiggy app, which is higher than the prices in the restaurant. Plus we have an extra restaurant packaging cost which was already present in the bill for even a pick up.
The following are the increase in prices on the swiggy app when we compare it to the bill:
Plain Dosa + Rs.15
Sambhar Vada +Rs. 12
Parotta Kurma + Rs 5
Restaurant Packing Charges +Rs 10
Gross increase + Rs. 42
GST increase due to additional price +Rs 10
Total Increase +Rs 52
Instead of an actual restaurant price of Rs 161, we land paying Rs 213 plus delivery charges (which we can excuse as convenience cost in this example), which equates to a 32% increase by ordering through swiggy.
So as per the different payment models for the delivery guys mentioned earlier in the article (the link from quora) this extra Rs. 52 pays for them straightaway. Now if you are wondering what happens to swiggy’s commission on the order, a few restaurateurs I spoke to personally have confirmed that swiggy charges them a commission on the price listed in the restaurant’s menu, which means on Rs 161 in this example. So lets say hypothetically its 20%, swiggy makes a profit / revenue of Rs. 32, plus the Rs. 15 I paid for the delivery charges making it Rs. 47 as the net on this order.
So are we actually funding swiggy to run its perations or being profitable?
Now for example 2. Same restaurant, nearly the same order but I ordered in the evening. The image below is of the first order.
The delivery charge on the image above is Rs. 15. The time of Ordering is in the Morning.
Now if we check the delivery charges on the above picture, same restaurant, same distance, just a different time of the day, there a huge difference in the delivery charge.
Why is there this difference?
Is it surge pricing ?
I think so. I had to cancel the above order because the time taken to assign a delivery person was longer the overall delivery time and worse, the person was 5KMs & 30 minutes away from the restaurant and was not sure why it got assigned to him. A clear case of lack of supply of delivery persons to pick the order and deliver it to the customers.
Are we again funding Swiggy for their lack of delivery staff, a struggling model or for them to be profitable on our account ?
Or are we funding the incentives for the delivery guys ?
Its not done yet as the next piece becomes more dicey. Lets look at how GST is panning out.
The first image, the restaurant charged me 5% overall GST amounting to Rs. 8 on a bill of Rs. 161. In the swiggy order, i am charged Rs. 8.05 and am not sure where this amount is coming from.
The order total is Rs. 125, so Rs. 8.05 on this is 6.44%.
Adding the packaging charges (remember this is something we are paying additionally), Rs. 8.05 on Rs. 135 makes its close to 6%.
Lets add even the delivery charge and make the total Rs. 150. Now the overall GST is 5.4%.
Maybe I am unaware of how GST gets charged / re-charged, but if we have to go the reversal route, then it shouldn't be more than 5%, which the restaurant charges us. And if what the restauranteurs mentioned about swiggy charging the commission on their menu price was accurate and if we map the 2 dishes, the actual GST I would have paid to the restaurant would have been Rs 5 (Dosa @ Rs. 60 & Sambhar Vada @ Rs. 38), instead I land up paying Rs 8.05 to swiggy.
What loophole in GST accounting is being used here ? Where is this difference going ?
Are we funding swiggy ?
If this analysis in this article is taken as the real deal, then technically the Swiggy model could be operationally positive as we the public are really funding them and they may not require additional funds any more.
But, whats really missing is the transparency in the pricing, which I and you as the paying customer needs to be aware and we hope swiggy can answer these anomalies.