New Delhi/Bengaluru: Hyperlocal food delivery start-up Swiggy has started hiring third-party logistics partners for delivery as the company struggles to scale its business, said four people aware of the development.

The new initiative, if rolled out at scale, will help the firm cut costs.

Swiggy, owned by Bundl Technologies Pvt. Ltd, services most of the orders with its own delivery fleet and claims that such a business model helps it retain complete control over delivery, which, in turn, translates into better customer experience.

However, with investors becoming increasingly cautious about their bets and the high delivery costs leading to cash burn, the company has now roped in Shadowfax Technologies Pvt. Ltd to deliver some of its orders in Bengaluru and Delhi. 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.

To be sure, Swiggy is among the best-funded food delivery start-ups in India, having 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 (the combined entity created after Tinyowl Technology Pvt. Ltd merged with third-party logistics company Roadrunnr).

“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.

A Swiggy spokesperson confirmed the development in an email, but added that orders serviced through external logistics firms currently make up less than 1% of the overall volume.

“Their services are used only occasionally, during unplanned demand spikes occurring in select areas," the spokesperson said.

According to industry experts, the average order value for food in the US is around $20, significantly more than the average 300 in India. Consequently, delivery companies in India which charge clients a commission of 10-20% of the order value end up losing money as every delivery costs more than 50.

Swiggy’s rival Zomato partners with third-party logistics firms for delivery. It had invested in Grab and partnered with e-commerce-focused logistics company Delhivery in September.

Shadowfax and Opinio did not reply to emails seeking comment. Swiggy did not confirm the names of the logistics partners.

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.

Though Swiggy currently wants to review the outcome of the pilot before scaling up engagement with logistics companies, industry experts say the move to outsource delivery will lead to cost efficiency.

“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 does not have the entire delivery fleet on a fixed pay basis. More than 60% of its delivery fleet comprises temporary employees who come in only at times of high demand such as lunch hours and dinner time. Swiggy also increased the minimum order value for free delivery from 150 to 250 and is testing a new model—charging a delivery fee of 20 for orders placed on holidays, festivals and rainy days when fewer delivery staff are available.

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