Authors: Riya Dhariwal, Vaibhav Agarwal & Chirag Bajaj

History

Did you ever think about the fact that today you can get food delivered to your doorstep even at 2 am? What made this possible? The story starts long back in 1889 when the 1st food delivery of Pizza took place in Italy. In the 1890s, a food delivery system called Dabbawala sprang up in colonial India.

As the demand for convenience grew, restaurants started offering food delivery to people’s homes. The smartphone revolution accelerated the growth with the introduction of Food Panda in 2012. Since then the food delivery market started growing in India.

However, the modern, technology-driven food delivery industry took shape in the 2010s, with the rise of online platforms like Zomato (founded in 2008 as a restaurant aggregator) and Swiggy (launched in 2014). These companies transformed food delivery by leveraging mobile apps, GPS technology, and large delivery fleets to offer a convenient, fast experience.

Initial Challenges

The early years of food delivery in India were challenging. One of the primary hurdles was establishing a reliable logistics network in a country with varied infrastructure and traffic conditions, which made timely delivery difficult. Additionally, they faced resistance from traditional restaurants that were initially reluctant to partner due to concerns over pricing and commissions. Consumer trust was another issue, as online food ordering was a relatively new concept, and convincing users to trust an app-based delivery system required persistent marketing and quality assurance. High customer acquisition costs, as well as the need to provide consistent discounts and deals, strained financial resources. Ensuring food safety and maintaining quality during transit also posed significant operational challenges.

Competitors

Zomato and Swiggy are the two primary competitors in India’s food delivery sector, but others like Dunzo and Uber Eats (before its acquisition by Zomato in India) have contributed to fierce competition. To gain market share, these companies offer various discounts and deals, including first-time user discounts, free delivery on select orders, and loyalty programs like Zomato Pro and Swiggy One. This intense rivalry has led to high customer acquisition costs, as each platform strives to keep prices low while enhancing service.

Impact of COVID-19: Advantages and Disadvantages

COVID-19 had a mixed impact on food delivery companies.The food delivery business was significantly impacted during the first quarter of  Fiscal 2021  as most restaurant establishments had temporarily closed operations in response to government-mandated lockdowns, and customers were unwilling to order food from restaurants. Similarly, revenues for dining out services were severely impacted. Such events have impacted,  and could in the future impact,  demand for restaurants and customers’ purchase patterns, which in turn, could adversely affect the cash flows,  revenue and result operations of the food delivery industry. Companies adapted by implementing strict safety protocols, which helped build trust. Despite temporary revenue dips, the industry witnessed long-term growth as many customers switched to home delivery for the first time.

The Growth of Online Food Delivery in India

The online Food Delivery market in India grew from ₹112 billion (US$1.4 billion) in 2018 to ₹640 billion (US$8 billion) in 2023 and is expected to become a ₹1400-1700 billion (US$17-21 billion) market by 2028P, growing at a CAGR of 17-22%.

Growing availability of organized restaurant supply and increased online penetration is expected to drive growth in the Online Food Delivery market beyond the top 60 cities. Within the top 60 cities, the urban consumer base is still underpenetrated, and a rise in the number of users alone is expected to grow the market. The growing need for convenience and variety fuels demand,  while the rapid expansion of the restaurant industry.

Both online  Food  Delivery and  Out-of-home  Consumption markets are growing on the back of a rapid increase in the share of organized restaurant supply, unlocking demand in the  Indian market. Traditional cultural preferences of home-cooked food and supply-side constraints of restaurants given higher prices per meal have limited the size of the food services market in India which is 9-12% of the total food consumption as of 2023, whereas the same for markets like the USA and China, which have a higher share of organized supply, is 55-60% and 37-42% respectively. 

Marketing

To attract a large user base, companies like Zomato and Swiggy have relied on creative marketing and impactful slogans. Zomato’s campaigns often emphasize convenience and availability with slogans like “Never have a bad meal.” Swiggy focuses on speed and service with taglines like “Swiggy it,” promoting the ease of getting any food from any restaurant. Both companies employ aggressive digital marketing, influencer partnerships, and app-based promotions to increase engagement.

Zomato’s IPO

Zomato became one of India’s first major tech unicorns to go public with its IPO in July 2021, marking a pivotal moment for the Indian food delivery industry. The IPO was highly anticipated and received an overwhelming response, raising around $1.3 billion and valuing the company at approximately $9 billion. This listing on the National Stock Exchange (NSE) and Bombay Stock Exchange (BSE) was a milestone, signaling investor confidence in India’s digital economy and the growth potential of online food delivery. The IPO’s success also set a benchmark, encouraging other tech startups to consider the public market as a viable option for raising capital. Zomato’s IPO showcased the rising influence of consumer tech companies in the Indian stock market, with investors focused on long-term growth. Standing true to Investor confidence, Zomato turned profitable in its ventures in the first quarter of FY 2024, with ever-growing numbers since then.

Swiggy’s IPO

IPO analysis as an investor – The Swiggy IPO was subscribed 3.59 times on November 8, 2024. The issue price per share was 390. On the listing day, Swiggy’s IPO reached a peak of 465.30 during a very bad market crash, which is phenomenal. The stock had a listing gain of about 19.2 %.

The implication of Swiggy’s IPO for the company – Through the IPO, Swiggy raised roughly 5085 crores. This IPO will help Swiggy strengthen its position in hyperlocal commerce and expand its food delivery network.

Impact of Swiggy’s IPO on the food delivery industry – Through the IPO as swiggy expands its market to new areas which have not been explored by swiggy, This will lead to intense competition between the two food delivery giants and Zomato will be forced to provide good services or else the customers might stop ordering from Zomato. This will lead to an increase in customer satisfaction and the chances of zomato becoming a monopoly and abusing its power is very low.

Laws and Regulations affecting the industry 

The central licensing mandate of the Food Safety and Standards Act, 2006 and its regulations, specifically the Food Safety and Standards (Amendment) Regulations, 2018 mandates FBOs engaged in e-commerce to have a license issued by the appropriate central licensing authority. This would apply to all stakeholders in the food supply chain including sellers, brand owners, as well as other providers such as transportation services providers, primarily last-mile delivery service providers. An FSSAI license would mean that the food was ready in a clean environment and followed the standard set quality. The above license would not only increase customer trust but attract new customers as it assures them that the food is safe and of high quality.

Conclusion

The food delivery industry in India has transformed into a fast-paced, highly competitive market. With a promising growth trajectory, both Zomato and Swiggy are set to expand further as they continuously innovate and adapt to changing consumer behavior. The shift toward online convenience, accelerated by the pandemic, has firmly established food delivery as an integral part of urban life in India, indicating significant growth potential in the coming years.

Disclaimer: This blog reflects the view of the analyst and is independent of the views of St. Xavier’s College (Autonomous), Kolkata.

Sources

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