How does the quick commerce business work? And what are the prospects therein for players like Swiggy, which has offered its shares for sale to retail investors this week?

In food delivery and quick commerce, Swiggy earns revenue by way of (i) commission charged from restaurant/merchant partners for sales enabled via the Swiggy App; (ii) advertising revenue from restaurant/merchant partners/brand partners (enabling advertising/prime placement of product or service on the app when customers search);  (iii) fees charged from users and delivery partners for use of the technology platform; and (iv) subscription revenue from Swiggy One membership programme. The primary contributors here are (i) and (ii).

One way in which the quick commerce business differs from food delivery is that Swiggy incurs costs by way of investing in supply chain and distribution networks encompassing warehouses and dark stores to provide fulfilment services to consumer brands and franchisees (distributors) for enabling delivery of groceries and other products.

In the B2B supply chain business, the business model is different with bulk of revenue coming from sale of goods to wholesalers and retailers, and balance from services for fulfilment for now, while company intends to increase the service component from here with a focus on margins.

A lot of Swiggy’s success hinges on growing its count of users/subscribers, increasing their engagement/transactions with current offerings in the Swiggy App and also monetising this user base with newer innovative offerings and taking a larger pie out of the consumers’ wallet share. Expanding a food delivery customer to also a quick commerce customer is one such innovative offering that has succeeded well.. More customer engagement also means more advertising revenue, which can further boost growth. In FY24, Swiggy had 14.29 million Monthly Transacting Users (MTUs), up from 10.26 million in FY22.

According to a report in the RHP that cites Redseer Strategy Consultants, the online food delivery market in India was at ₹60,000 crore or $7.1 billion in FY23 with a potential to grow at around 20 per cent CAGR to ₹1.5 lakh crore by FY28. Players like Swiggy and Zomato can grow at or above the industry growth rate if they execute well.

‘Staggeringly high CAGR potential’

At the same time, it estimates potential for an even more staggeringly-high CAGR of 60-80 per cent in quick commerce sector (from FY23 levels of ₹22,400 crore) till FY28.

It is not clear if Swiggy or Zomato can grow at or above industry growth rate in this segment, given the presence of new competitors such aslike Zepto, BigBasket and possibly aggressive entries by Amazon and Reliance as well. Nevertheless, Swiggy is well positioned to tap this huge opportunity and quick commerce is one aspect where a large part of the answers to what is the growth that Swiggy can deliver lies in.. Around 45 per cent of IPO proceeds is earmarked for investments directly related to the quick commerce business with the company planning to expand dark stores count in existing as well into new cities.

Can Swiggy be one of the mega winners? That is the $10-billion (₹87,000 crore) question that investors will have to reckon with before Swiggy IPO opens this week on November 8. The ₹11,327-crore IPO of Swiggy (out of which fresh issue is ₹4,499 crore), will value the company at a market cap of ₹87,000 crore and enterprise value (EV) of ₹78,000 crore. And upon conclusion of this IPO, the flaming and, at the same time, spirited competition between Swiggy and Zomato will extend into the capital markets as well.

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