Swiggy signals restraint in quick commerce as Instamart’s Q3 losses climb

Bengaluru: Swiggy Limited struck a cautious note on its quick commerce business in the December quarter, signalling a review of aggressive consumer incentives amid intense competition. Adjusted Ebitda losses of Instamart, the company’s quick commerce arm, widened to ₹908 crore during the quarter compared to ₹578 crore in the year-ago period as it stepped up spending on marketing and customer-facing experiments such as Maxxsaver, and on a greater assortment of products.

Some recent investments delivered only “limited success” and are currently being reviewed, the firm’s managing director and group CEO Sriharsha Majety said in the letter shareholders. “Amidst irrational competition, our recent investments into lower consumer-side monetization have not yielded the desired incremental order-growth, especially at the bottom of the AOV (average order value) pyramid, and are being reviewed.”

While Instamart’s gross order value more than doubled year-on-year to ₹7,938 crore from ₹3,907 crore in the year-ago period, the company said it was unwilling to chase purely volume-led growth through deep discounting. It said it had consciously stayed away from “irrational” price wars that could undermine order sizes and unit economics, even if it results in slower order growth in the short term.

Swiggy's shares rose 0.11% to ₹323.85 at market close on Thursday. The stock is down about 25% over the past year.

'Irrational' competition

Competitive intensity in quick commerce surged in the December quarter, with major platforms rolling out new initiatives to attract customers and expand AOVs. While Instamart eliminated handling fee for orders above ₹299, rival Zepto waived handling and surge charges for orders above ₹99 in November.

Competition from Reliance Retail’s quick commerce venture JioMart is also now becoming apparent, with the firm noting that it fulfilled over 144 million orders in the December quarter thanks to its footprint of 3,000 stores across 1,000 cities. Blinkit, the market leader in quick commerce, fulfilled 243.3 million in the same period.

Instamart serviced nearly 106.4 million orders in the December quarter, up from 73.2 million in the year-ago quarter. Monthly transacting users shot up more than 80% to 12.8 million in Q3 from the previous year. AOV in the third quarter stood at ₹746, against ₹534 in the previous year.

Swiggy Limited expects competition to stay tight. “We believe that the irrationality [in competition] will continue and have a headwind on our growth,” Amitesh Jha, CEO of Instamart, told analysts on Thursday.

“The category is only 25% done, and we continue to have a very large opportunity to go after. Ultimately, as we have outlined before, playing to win in the long-term will depend on our ability to increase our staying power in a hyper-competitive market,” Majety added.

Moreover, Swiggy believes the market is large enough for several players to compete in, Rohit Kapoor, CEO of its food marketplace business, told Mint. “We [Swiggy] have lived in competition our entire lives. Our P&L, balance sheet, and strategy are in our control. What others do is not,” Kapoor said in an interview on Thursday.

Swiggy’s operating revenue surged more than 53% to ₹6,148 crore in the third quarter, while increased expenses on Instamart weighed on the firm, widening its net losses for the period to ₹1,066 crore from ₹800 crore a year ago.

Food delivery shines

Swiggy’s food delivery arm posted 20% year-on-year growth to ₹8,959 crore in gross order value (GOV) in the December quarter, its fastest growth in three years. Adjusted Ebitda touched ₹272 crore, against ₹184 crore in the same quarter last year.

New initiatives such as Bolt, 99-store, and EatRight have hit product-market fit (PMF), with Bolt and 99-store now accounting for more than a fifth of the firm’s food delivery order volumes, Kapoor said. “Snacc and Toing are at the pre-PMF stage. We will continue driving investments in platform innovations to the extent that makes sense,” he added.

The firm is focused on further opening up the market by catering to specific food preferences and ‘need-states’, some of which typically come with better AOVs and hence economics, Kapoor said.

The food delivery arm clocked an operating revenue of ₹2,041 crore, up from ₹1,637 crore in the previous year. Swiggy maintained its guidance of 18-20% year-on-year GOV growth in food delivery, it said in its letter to shareholders.