Amazon is ready with an initial war chest of $500 million (Rs 3,500 crore) to take on Swiggy and Zomato in the food-delivery business, portending a delicious confrontation not unlike the rivalry with Flipkart in online retail.
The war for dominance in food delivery, people familiar with Amazon’s planning said, will be fought on multiple fronts, and this could test the mettle of the incumbents in what is a cash-guzzling business.
“We have disrupted every business we have entered, be it ecommerce, payments or entertainment,” a senior Amazon executive told Moneycontrol on condition of anonymity.
The launch is slated to happen around Diwali at the end of this month.
One of the main battlefronts, sources said, will be the commission that Amazon charges restaurants to deliver customers’ orders. as it seeks to win over a vital group which has been skittish about the practices of companies in the food-ordering space.
Amazon, headquartered in Seattle in the United States, launched in India in 2013, entering a market where the country’s most successful startup Flipkart was the leader and fighting off competition from Snapdeal and the ecommerce arm of Paytm. Six years on, Flipkart has been sold to the world’s largest retailer, Walmart, and Snapdeal and Paytm are no longer forces to reckon with.
Amazon will charge restaurants one-fourth of what the incumbents do as commission, the owner of a restaurant chain which does business with food-ordering companies said. Swiggy and Zomato take up to a 20% cut from restaurants. For subscribers of its loyalty programme Prime, food will be delivered free.
The US company will set up cloud kitchens (delivery-only, with no option to dine in), aggressively hire delivery agents and reduce the amount of time it takes for food to be delivered. Other perks for customers will come in the form of lower prices and cashbacks through the Amazon Pay wallet.
The Indian food delivery market is forecast to be worth $17 billion in 2023, growing at 16% annually, according to Pune-based Market Research Future. Zomato recently claimed 214 million orders worth $821 million in the first six months of 2019-20. Swiggy has not disclosed gross merchandise value or transaction volumes. In July consultancy Redseer estimated average daily volumes of 3 million transactions. The food-tech companies owned by ride-hailing firms—Ola’s Foodpanda and Uber Eats—are marginal players.
Swiggy has raised $1.3 billion so far, including a billion-dollar round in December 2018 when it was valued at $3.3 billion. South Africa’s Naspers is the key backer of the Bengaluru-based company, which was founded by Sriharsha Majety (the CEO), Nandan Reddy, and Rahul Jaimini.
Zomato has raised $750 million so far at a valuation of $2 billion, and counts China’s Ant Financial as its main investor. The Gurugram-headquartered company, headed by founder-CEO Deepinder Goyal, is on the lookout for more funding, as is Swiggy.
For Amazon, it won’t have to scout for funds from investors. “That’s a big advantage. The $500 million is just the first round of money to build it out,” said a source.
But the food industry isn’t easy and throwing large amounts of money won’t solve every problem. Foodpanda offered meals at Rs 1 as a customer-acquisition strategy but that did not buy loyalty. “Indians have an insane amount of appetite for free food. You can give free food for the rest of your life and still there won’t be loyalty,” said a restaurant-owner, who sells on Zomato.
Amazon is good at fast delivery of goods in 24-48 hours but food is different, where minutes matter. Delaying orders for hungry people can cause serious heartburn, and there are other issues too. Food cannot be cold, packaging has to be good, and the food cannot leak. “There is no time to recover from a delivery error,” said Rashmi Daga, the founder of online food-ordering startup Freshmenu.
Besides, most food-ordering happens during lunch and dinner-time peaks, which means that delivery agents are under-utilised during the rest of the day, said Sandipan Mitra, cofounder and CEO of HungerBox, which runs more than 500 captive cafeterias and fulfills half a million orders daily.
Amazon hopes to solve the problem of uneven demand for delivery using predictive technology. Moreover, the logic goes that delivery agents can be deployed to deliver parcels for the retail business when they are not delivering food, an advantage not available to others.
Where does this leave Amazon’s competitors? “Eventually when the market settles, there will be one clear leader, a distant No. 2, and the third and fourth player in the ecosystem will struggle,” said Mitra.