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Swiggy will invest another Rs 75 crore to expand its cloud kitchens

Updated: Nov 21, 2019, 08.59 AM IST
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Today, a majority of food delivery takes place from dine-in restaurants, but these locations are not optimized for delivery.

Highlights

  • This takes the total investment to as much as Rs 250 crore.
  • Swiggy Access offers restaurants an invitation-only programme after evaluating supply constraints in every cluster.
  • For Swiggy, the next six months will be focussed on foraying into new markets.
BENGALURU: Food delivery platform Swiggy plans to invest Rs 75 crore in the next six months to expand its cloud kitchen or delivery-only infrastructure business, a top executive told ET. This takes the total investment made by the Naspers-backed company to the cloud kitchen business which it calls Swiggy Access to as much as Rs 250 crore.

The expansion, which will largely be in 14-15 additional smaller towns and cities including Guwahati, Tirupur, and Surat comes at a time when the industry is likely to get hyper-competitive with Amazon, Travis Kalanick's City Storage Systems, and Zomato's infrastructure arm all eyeing a share of the same market.

“There is a fundamental mindset shift that is coming through (in restaurants) that on the back of cloud kitchens it is easier to expand,” said Vishal Bhatia, CEO, New Supply, Swiggy. “The play on Swiggy Access is leasing, construction, and marketing. A bulk of the investment goes into setting up the facility,” he said. Based on revenue-sharing model, Swiggy Access runs 1,000 kitchens across 14 cities. This business contributes about 3-4% of overall order volume or 1.5 million orders in a month. “However, in the neighbourhood that Swiggy Access operates, we meet anywhere between 15-20% of order volume,” said Bhatia. Swiggy claims to have created 8,000 jobs through Access and looks to add 7,000 more in the next 6 months.

Zomato runs 650 kitchens across more than 50 cities, the company said.

Cloud kitchens are delivery-only properties that help restaurants reduce their real estate and labour costs while keeping the window of expanding brands and offerings rapidly. Building a supply of these delivery-only properties helps food delivery apps to expand the selection of cuisines across locations, reduce delivery time, as well as increase commissions. To create these assets, however, requires a fixed capital investment, safety, and licensing compliances.

While business models across companies differ, Swiggy Access offers restaurants an invitation-only programme after evaluating supply constraints in every cluster. It offers brands free real estate without equipment and works on a revenue share model per delivery.

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For Swiggy, the next six months will be focussed on foraying into new markets. “The dynamics when partners move to relatively smaller cities is something we want to learn because that is completely dependent on the demand that comes out of there, their economics, their liabilities... If that market too proves itself, then there is no reason to slow down,” he said.

Today, a majority of food delivery takes place from dine-in restaurants, but these locations are not optimized for delivery. And, while delivery is an increasing percentage of the business, many operators are forced to trade off the dine-in experience with delivery.

Besides generating increased order demand, Swiggy and Zomato have an added advantage to use their own platform for data to choose locations for opening these cloud kitchen properties, and then based on supply constraints, location requirements, it invites those specific restaurants onboard. However, once onboard, these businesses have an exclusivity contract to not sell on other competing marketplaces.

Also Read

Zomato denies merger talks with rival Swiggy

Working with restaurants to resolve issues, says Swiggy

Dunzo gets $45 million to fight Swiggy, Amazon

ET Awards: Want 30% pie beyond food delivery, says Swiggy

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