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Swiggy’s Instamart division has followed in the footsteps of its competitor Zepto Cafe by introducing its own cafe-like division called ‘Instacafe.’ This move is part of Swiggy Instamart’s strategy to enhance profitability, as cafe items generally yield higher profit margins compared to grocery deliveries. Instacafe, currently in its testing phase, offers around 60 different stock keeping units (SKUs) and is limited to specific areas such as Bommanahalli and Bellandur in Bengaluru, as well as a few locations in Hyderabad.
Swiggy Instamart has introduced a new cafe service called Instacafe, offering pre-made snacks like puffs, sandwiches, baos, coffee, cookies, tarts, and croissants. Customers can add these items to their Instamart cart along with their grocery orders. Instacafe is part of Swiggy’s expansion strategy, which includes launching private brands, electronics, and mobile accessories. By adding new categories like cafes, Swiggy aims to increase the average order value of customers and improve profit margins.
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Instacafe, initially launched in select areas of Hyderabad and later extended to Bengaluru, is planning to expand its menu offerings. In its pilot phase, Instacafe currently offers approximately 60 different items or stock-keeping units (SKUs) available in specific locations such as Bommanahalli and Bellandur in Bengaluru and a few areas of Hyderabad. The food items on Instacafe are currently unbranded and sourced directly by dark store managers responsible for serving specific locations.
Instacafe and Zepto Cafe differ in their sourcing methods, with Instacafe relying on dark store managers to directly source unbranded snacks, while Zepto Cafe purchases bulk supplies from brands. Zepto Cafe has partnered with established brands like Blue Tokai and Chaayos, offering a more extensive and standardized menu. While concerns about cannibalizing Swiggy’s core business arise, both Instacafe and Zepto Cafe primarily focus on quick snacks rather than full meals, although their menus are gradually expanding to include larger meal options. Increasing profitability by selling items with higher margins has become crucial for these startups, as stakeholders, including founders and investors, question the viability of rapid delivery business models. As a result, these companies are striving to expand basket sizes, according to analysts.
Zomato and Ola, two prominent companies in the food delivery and transportation industries, previously attempted to establish quick-commerce services but encountered limited success. Zomato had experimented with 10-minute food delivery of similar items but discontinued the service earlier this year. Ola, on the other hand, offered quick-commerce through its service Ola Dash, providing items like pizza and rolls in 10 minutes in Bengaluru. However, they eventually shut down Ola Dash in June 2022.
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Recent data indicates that the average order value (AOV) for quick-commerce companies has been declining. In the fourth quarter of FY23, Blinkit, a quick-commerce service owned by Zomato, reported that its AOV dropped to Rs 522, compared to Rs 553 in Q3FY23, Rs 568 in Q2FY23, and even below Rs 528 in Q1FY23. This suggests a downward trend in customer spending on quick-commerce services.
Swiggy’s co-founder and CEO, Sriharsha Majety, announced last week that the company’s food delivery arm has achieved profitability on an adjusted EBITDA level. As a result, he mentioned that Swiggy will be reducing its investments in Instamart, the company’s quick-commerce business.
Majety expressed excitement about the progress of Instamart, stating that Swiggy pioneered and developed this category and made significant investments in it due to its appealing consumer proposition and strategic importance. However, he mentioned that the peak of investments in Instamart is now in the past, and the company is on track to achieve contribution neutrality for this three-year-old business in the upcoming weeks.
