Swiggy and Zomato are fortifying their positions

The battle lines have been drawn. On one side is Zomato and the other, Swiggy. Both have successfully become verbs. But both want to be the only verb when it comes to customers, investors, and food. And the duo has now found a new way to achieve that: cloud kitchens. Zomato has infrastructure services, and Swiggy, The Bowl Company (for now).

But maintaining a cloud kitchen isn’t an easy business. After all, it takes a restaurant an age to perfect recipes and even then sometimes, it just doesn’t agree with changing tastes. And these restaurants have the advantage of a physical storefront and advertisements. Food tech companies have tried their version of restaurants, with varying levels of success.

Having a grip on the concept

Delhi National Capital Region (NCR)-based Yumist’s expansion to Bengaluru in 2015 was unsuccessful. It went back to the basics and decided to focus on Delhi NCR. Sequoia-funded Faasos, which championed the concept back in 2015, too, has found life difficult.

For Zomato and Swiggy, these experiments signify different things. Zomato is reducing its losses, and this new cloud kitchen could help by increasing order delivery margins. For Swiggy, it’s part of the quest to build a profitable arm of the business. An arm, which will fund its delivery business.

The difference between the two cloud kitchens is stark. Zomato invites established brands to be a part of the kitchen. Swiggy will cook and sell its own food, just like FreshMenu. There is pressure, however, on both companies to show some profitability. There is a reason. It may not be a two-player market anymore. International superstars are eyeing India. Superstars like Google (for discovery, which is Zomato’s strength) and Uber’s food delivery arm UberEATS (Swiggy’s muscle).

Enter, cloud kitchen.

Attack formations

A cloud kitchen can best be described as a kitchen with no storefront. There’s no physical place a customer can walk up to, linger on the menu and place an order. That lingering happens on the web or an app. The kitchen cooks and delivers. It saves the cost of renting or buying property on the high street.

The Ken sent Swiggy a detailed questionnaire. The company chose not to comment.

To set up a cloud kitchen, Swiggy tried many variations and price-points. But nothing stuck until it came up on a small revelation. In March 2016, it saw a surge of new users, in the age group of 16-28. They gave Swiggy a cause to celebrate. The company hit a record high of one million orders a month. But few, if not all, had the spending potential. The most they were willing to spend was Rs 200 per order (without a delivery fee). Currently, Swiggy has a delivery fee for orders priced less than Rs 250. When these customers saw the Rs 30 delivery fee, they dropped the order. Some others still paid to test a restaurant. “Some of the new customers used Swiggy for discovery. Found the numbers of the restaurants and ordered directly. No fee,” says a senior executive at Swiggy. He asked not to be identified as he is not allowed to talk to the media. Swiggy could not afford to lose these customers. They ordered eight times a month.

This was an important learning for the company. It taught Swiggy that the optimal price-point for the cloud kitchen had to be Rs 200.

So late last year, in August, Swiggy created a brand called The Bowl Company. As things stand today, the cloud kitchen caters to just one neighborhood in Bengaluru: Koramangala. For the simple reason that the neighborhood has a population, which Swiggy believes will experiment with food.

Work on both fronts has been slow so far. According to employees within the organization, Swiggy has been able to draw about 800 orders a week at an average price of Rs 200. And the average delivery time still hovers around 45 minutes. “Swiggy treats The Bowl Company just the way it treats other restaurants,” says another senior executive who asked not to be identified.

So, to decrease delivery time, it has to increase the number of orders. Another challenge is, the brand is too young so not many know it. Restaurateurs say that it takes upwards of a year with heavy marketing to establish recall. And keep customers coming back.