In India’s rapidly expanding online food delivery landscape, industry frontrunners Zomato and Swiggy are revamping their strategies to appeal to a growing demographic of budget-conscious consumers, specifically focusing on students and job-seekers. As the conventional methods of customer acquisition show signs of slowing, both platforms are pioneering initiatives to cater to the needs of value-driven consumers.
Take Swiggy, for instance. Hailing from India’s tech hub of Bengaluru, it has recently rolled out a game-changing pilot initiative dubbed ‘Pockethero‘ across 15 cities. This strategic move is designed to capture the attention of the sizable market of students and freshers looking for pocket-friendly food delivery options. The platform has partnered with specific restaurants to offer higher discounts and free deliveries to entice and onboard new customers.
Similarly, Zomato has rolled out the ‘Everyday‘ program, a concerted effort to provide affordable home-cooked meal options. Aligning with Swiggy’s approach, Zomato has collaborated with a specific group of restaurants to present ‘Everyday’ meals at their most attractive value propositions. Rakesh Rajan, the Food Delivery CEO at Zomato, highlights the significance of marrying affordability with high-quality food quality as a key driver for fostering the growth of the restaurant industry.
Shifting Focus: From New Acquisitions to Profitable Growth
Industry analysts highlight a noticeable shift in the priorities of India’s food delivery platforms. Swiggy and Zomato have been focused more on profitability and increasing platform usage among their existing medium-to-high frequency customer base through loyalty programs. Concurrently, the focus on acquiring new customers appears to have taken a backseat.
“So, instead of spending too much on getting in new customers, the push was towards milking more orders out of existing customers. While this increased order frequency accrues in the form of margins over a longer period of time, the platform, as a whole, becomes less attractive to a new customer,” a Mumbai-based internet sector stock analyst said.
Data sourced from Sensor Tower, cited in a recent research note by Bank of America (BoFA) Securities, reveals that there has been minimal growth or, in some instances, a decline in daily active users (DAUs) and app downloads for food delivery platforms over the last six months. In November, Zomato experienced a modest 0.6% sequential increase in DAUs, while Swiggy saw a decline of 1.9% in DAUs during the same period. What’s more surprising is the 21% drop in Zomato app downloads in November, casting a shadow over its market presence.
The decline in new customer acquisition for Swiggy and Zomato can also be attributed to the arrival of the Open Network for Digital Commerce (ONDC), an initiative backed by the Indian government. ONDC allows restaurants to sell their food directly to consumers, eliminating the need for intermediary platforms like Zomato and Swiggy. By removing the middleman, customers can enjoy lower prices as these platforms levy no additional fees or commissions.
With direct sales facilitated by ONDC, restaurants have more flexibility in setting competitive prices. This increased competition and pricing flexibility could lead to better deals and more affordable consumer options.
Growth in Monthly Transacting Users
Despite these trends, both Zomato and Swiggy are experiencing growth from an expanding base of transacting users who place orders on a monthly basis. This expansion in the base of regular customers indicates a positive trend for both platforms, suggesting sustained and recurring engagement from a growing number of users who utilize their services at least once a month.
In its recently disclosed half-yearly earnings, Prosus, a major investor in Swiggy, reported a notable 17% YoY increase in food delivery gross merchandise value (GMV) for Swiggy. The platform achieved a GMV of $1.43 billion between April and September 2023. This growth was attributed to the expanding base of transacting users, contributing to a double-digit increase in order volume. Additionally, there was an uptick in average order values (AOV), further driving the positive performance of Swiggy’s food delivery segment during the specified timeframe.
On the other hand, Zomato, in its earnings report for the September quarter, outlined its anticipation of future growth driven by monthly transacting customers. Currently, only 30% of Zomato’s overall customer base places orders at least once a month. Interestingly, nearly 40% of its gross order values for food delivery originate from high-frequency customers who have subscribed to its Gold loyalty program.
As Zomato and Swiggy explore diverse strategies, the question remains: Can these innovative approaches strike the right balance between profitability and attracting new customers? How will the online food delivery industry dynamics evolve as these platforms continue to adapt to the changing demands of a diverse consumer base?
