Swiggy’s Instamart has entered the cafe market with ‘Instacafe’, mirroring its rival Zepto’s ‘Zepto Cafe’ launch. This strategic move aims to boost Swiggy Instamart’s profitability by capitalizing on higher-margin items, diverging from its core grocery delivery business.
According to a spokesperson from Swiggy Instamart, Instacafe offers a range of pre-made snacks such as puffs, sandwiches, baos, coffee, cookies, tarts, croissants, and more. These items can be added to customers’ Instamart carts alongside their grocery orders, resembling the convenience of pre-made food available in supermarkets.
Swiggy Instamart’s continuous expansion includes the recent launch of its own private brands, followed by venturing into electronics and mobile accessories. The addition of Instacafe further expands their offerings. By diversifying into additional categories, Swiggy aims to increase the average order value and ultimately improve profit margins per order.
A spokesperson from Swiggy Instamart responded to queries, stating, “Buying pre-made food and snacks along with groceries in-store is fairly common. Instamart’s Instacafe is a similar online food counter with fast-moving snacks that are great additions to the grocery baskets of users and are delivered in minutes along with other items on Instamart. Instacafe has been live in a couple of locations on Instamart since last year.”
An insider familiar with the company’s plans revealed that Instacafe, which underwent initial trials in specific areas of Hyderabad last year and subsequently expanded to Bengaluru in March this year, is now actively considering the inclusion of more items to its menu.
As of now, Instacafe is in the pilot stage and features approximately 60 stock-keeping units (SKUs) or items. These items are exclusively available in select locations, including Bommanahalli and Bellandur in Bengaluru, as well as a few areas in Hyderabad.
The individuals cited explained that at present, the majority of food items on Instacafe are unbranded. These items are sourced directly by the dark store managers who are assigned to service specific locations.
The contrasting approach between Instacafe and Zepto Cafe lies in their sourcing methods. Instacafe procures unbranded food items directly from dark store managers, whereas Zepto Cafe buys branded snacks in bulk from brands and distributes them to dark stores for customer sales. Zepto Cafe has already formed partnerships with renowned brands like Blue Tokai and Chaayos, enabling them to provide a wider range of menu options with standardized offerings.
Despite concerns of cannibalizing Swiggy’s core business, the person mentioned maintains that Instacafe primarily focuses on quick snacks rather than full meals. Zepto has also reiterated its stance of not venturing into food delivery.
However, both Zepto Cafe and Instacafe are increasingly offering larger meal options on their menus. Zepto Cafe now serves Thai Red Curry with steamed basmati rice, while Instacafe provides choices like chicken fried rice for customers seeking a more substantial meal.
Startups in the delivery industry are under pressure from stakeholders, including founders and investors, who are questioning their business models that prioritize speedy delivery. Analysts have observed that as a response, these companies are seeking to expand their offerings with higher-margin items in order to increase the average order value.
Nevertheless, Zomato and Ola had previously attempted a similar approach but experienced minimal success. Zomato, for instance, conducted a pilot for 10-minute food delivery of comparable items but decided to discontinue the service earlier this year. Similarly, Ola offered quick-commerce service Ola Dash, providing items like pizza and rolls within 10 minutes in Bengaluru, but eventually closed it down in June 2022.
Recent data indicates a downward trajectory in the average order value (AOV) for quick-commerce companies. Blinkit, owned by Zomato, reported in its FY23 results that the AOV declined to INR 522 in Q4FY23, compared to INR 553 in Q3FY23, INR 568 in Q2FY23, and even dropping below INR 528 in Q1FY23.
During a recent announcement, Swiggy’s Co-Founder and CEO, Sriharsha Majety, revealed that the company’s food-delivery division had achieved profitability on an adjusted EBITDA basis. He further mentioned that as a result, Swiggy would reduce its investment in Instamart going forward.
“As our investments in food delivery are starting to pay off successfully, we’re also very excited about the trajectory of our quick-commerce business, Instamart. We pioneered and built this category from the ground up, and have made disproportionate investments in Instamart given the attractiveness of the consumer proposition and its strategic importance to us…The peak of our investments is behind us…we’re on track to hit contribution neutrality for this 3-year-old business in the next few weeks,” Majety said.
Read More: Swiggy’s strategic initiatives pay off as food delivery business turns profitable
