July 05, 2016: Swiggy, Hyperlocal food delivery start-up has begun to hire third-party logistics partners for delivery as the company struggles to scale its business, said four people aware of the development.
The new initiative will help swiggy to cut costs.
The orders are attended by Swiggy’s own delivery fleet and claims that such a business model helps in retaining complete control over delivery, which, in turn, translates into better customer experience.
The company has now roped in Shadowfax Technologies Pvt. Ltd to deliver some of its orders in Bengaluru and Delhi, as the are investors becoming increasingly cautious about their bets and the high delivery costs leading to cash burn, The firm is also in advanced talks to seal a deal with Opinio (Moonshots Technologies Pvt. Ltd) to deliver in Bengaluru, said one of the four people cited above. Swiggy also held talks with Mumbai-headquartered Grab a Grub Services Pvt. Ltd, but the talks were unsuccessful.
Being the best-funded food delivery start-ups in India, Swiggy raised about $60 million from the likes of Accel Partners, SAIF Partners and Norwest Venture Partners, among others, since April last year. The firm competes with Zomato Media Pvt. Ltd, Rocket Internet-backed Foodpanda and Runnr.
“While Swiggy has a clear lead over the rest in Bengaluru and Hyderabad, it is not in the best of shapes in Delhi, which is dominated by Zomato. The partnerships with third-party delivery firms will help Swiggy reduce some cash burn in its books. The plan is to start outsourcing deliveries on a small scale, but if the pilots go well, this may be expanded,” said the person quoted above.
“Their services are used only occasionally, during unplanned demand spikes occurring in select areas,” the spokesperson said.
Grab, however, confirmed that the two companies explored the possibilities of a partnership.
“We did receive a call from Swiggy a few weeks ago as they were looking for logistics companies to outsource a portion of their surge o rders. We declined due to disagreement on commercials and their expectation of just a peak-hour delivery management solution,” Nishant Vora, co-founder at Grab, said in an email.
“It is very hard to optimize utilization (of delivery fleet) on your own. One day your orders are lesser. So the companies which are doing it for a lot of players will be able to manage the utilization much better because they have to build limited buffer across multiple vendors; but if you are alone, you cannot even deal with a 10% variation in the order. So it is very critical from the cost-efficiency point of view. Scalability as well as cost are big factors,” said Abhishek Goyal, co-founder of Tracxn, a start-up tracker.
Swiggy also increased the minimum order value for free delivery from Rs.150 to Rs. 250 and is testing a new model—charging a delivery fee of Rs. 20 for orders placed on holidays, festivals and rainy days when fewer delivery staff are available.