Amazon enters food delivery space: How bad is the news for Swiggy and Zomato?

Both Swiggy and Zomato have invested heavily in building the food delivery category in India over the last several years. Their efforts were mainly aimed at user acquisition and education. So, will Amazon now reap the benefits of the duo’s efforts?

E-commerce giant Amazon has just announced its entry into the online food ordering and delivery space in India. Amazon Food has been launched as a pilot project in Bengaluru, with deliveries in four pin codes of the city, to start with. Amazon has also been busy onboarding partner restaurants. However, the space has, for long, been dominated by Swiggy, Zomato and Uber Eats. With Zomato’s recent acquisition of Uber Eats, the food delivery category in India became a duopoly, just like Uber and Ola in the online cab-hailing market. Amazon’s move is like a head-on collision with Swiggy and Zomato at a time when online food ordering is under severe strain due to the ongoing national lockdown.

Deepinder Goyal, co-founder and CEO, Zomato, said, in a company blog post, “A large number of restaurants have already shut down permanently, and we know that this is just the tip of the iceberg. I expect the number of restaurants to shrink by 25-40 per cent over the next 6-12 months. What actually happens, for better or worse, is anybody’s guess.”

Sriharsha Majety, Swiggy’s co-founder and CEO, wrote, “The core food delivery business has been severely impacted, and will stay impacted over the short term, but is expected to start growing again after that.”

Both Zomato and Swiggy have now decided to tap into alternative revenue streams. First, with entry into the online grocery delivery space, originally occupied by Grofers, BigBasket and Amazon Pantry. The duo has even started online alcohol delivery services in Jharkhand, a rather promising diversification, if they can pull it off without getting entangled in regulatory framework.

It is worth mentioning that being early movers Zomato and Swiggy have invested heavily in building their brands, along with the food delivery category in India, over the last several years. Both the platforms ran major advertising campaigns across mediums, which was coupled with sustained discounting. These were mainly aimed at user acquisition and education. So, will Amazon now reap the benefits of the duo’s efforts? Although both Zomato and Swiggy are established brands in the space, Amazon swears by its on-ground logistics muscle. Amazon, in fact, claims to have serviced orders to 99.4 per cent of the pin codes in the country.

Amazon launched its restaurant delivery business globally in 2015 starting with the US and later spreading to other countries. However, its food delivery business was shut down in June 2019 following stiff competition from players like GrubHub, PostMates, DoorDash, and Uber Eats. While it’s food delivery service in London shut down in late 2018, Amazon recently announced plans to invest in Deliveroo, a London-based food delivery start-up.

However, the prospects for restaurant-prepared food don’t seem healthy in the near future. Eighty-seven per cent of the 24,000 respondents in a survey conducted by LocalCircles (a community social media-cum-polling platform) said that they don’t want to visit a restaurant in the next 30 days, due to the fear of getting infected. Around 65 per cent said they will not order restaurant food via food delivery apps in the coming months. A majority was also reluctant to spend on eating out.

Turning to experts

K Vaitheeswaran, founder of Again Drinks and India's first ecommerce company FabMart (also known as the father of Indian e-commerce)

If a business category particularly involves operational efficiency, then the players should be worried of Amazon’s entry. The key things in this particular business include logistics, like pickup and delivery, and then customer services. Amazon is a master of all of this. Second, for Swiggy and Zomato, apart from some of their initiatives, like cloud kitchens, etc., most of their business comes from restaurants. So, in that case, there is no product differentiation. The food and the restaurant is the same. It is just the quality of the operations, like timings, refunds, etc., that matters.

Also, Amazon has a lot of capital and it can keep at it until it becomes a big player. Zomato and Swiggy would have enjoyed the first mover's advantage if a newly created brand entered the space. But Amazon is already a very strong brand. It won’t take too long for Amazon to communicate and grab market share. For me, the biggest card that Amazon has is Amazon Prime, which is one of the biggest loyalty programs in the world. Say, Amazon offers free deliveries for all food orders for a year, how does a rival counter that?

Lloyd Mathias, angel investor and business strategist (former A-PAC marketing head of HP)

I think Amazon getting into the food delivery space is a logical and relevant extension, given its adjacency and synergy with its e-commerce business. Amazon can use its existing logistics and reach into households to effectively add on food to its offerings. Also, in this COVID-19 phase, both Swiggy and Zomato are leveraging their distribution by delivering consumer goods, by doing tie-ups with FMCG companies. So, in a way, Amazon is protecting its turf by playing an aggressor, which is a clever leadership strategy.

Another advantage is that it will help Amazon flatten its delivery skew, by now adding late evening food deliveries to its existing home delivery schedules, which are now predominantly during the day. As a brand, Amazon is already well established in the consumer’s mind as a trusted brand, so it can easily ride on the food delivery bandwagon that Swiggy and Zomato has created over the past few years.

N Chandramouli, CEO, Trust Research Advisory

Everybody will eventually merge into a unified delivery platform. It is time for players to specialise in delivery, as a whole, and not specific areas. Earlier, the vision was of a singular narrow focus, say, if someone wanted food delivery, they would go to Swiggy. In today’s time, it is about having extremely strong last mile delivery infrastructure, i.e., the delivery personnel, etc. But unless people are ordering, it is neither good nor bad news for anybody. Swiggy and Zomato will have to innovate to stay relevant for themselves, and also their riders. If the riders jump ship, they won’t have anything. Today, it is about who is able to meet consumers’ needs and deliver on time.

Also, for restaurants, it is a matter of survival. They will go to any platform that gives them a good deal. Also, Zomato and Swiggy’s venturing into alcohol delivery is a phenomenal step... Despite the challenges, if it sustains in the long term, they will have a achieved a new category in the delivery ecosystem, and would see highly repetitive usage. The one who is able to crack a comprehensive deal for all the stakeholders, like the consumers, riders, restaurants, etc., will win.

Harish Bijoor, brand guru and founder, Harish Bijoor Consults

It is surely bad news for the early entrant. Amazon is a 360-degree player and it is about essential e-commerce, non-essential e-commerce, Prime Video, and now, food delivery. Possibly, even parcel and document delivery soon. When one entity is about all this, that one entity dominates imagery. Amazon is that one entity. Expect action and traction.