Zomato Vs Swiggy: Not Just Quick Commerce But Also Quick Funds Race

India's two largest food delivery startups will fight it out, not just for app space on consumers' smartphones, but also for institutional money over the next few months.

Swiggy Ltd. and Zomato Ltd. are looking to raise funds in the primary market—the former via an initial public offering and the later through a qualified institutional placement.

Swiggy is looking to raise over Rs 10,400 crore, of which Rs 3,750 crore is via fresh issue and remaining through offer for sale. Meanwhile, Zomato is eyeing at close to $1 billion, i.e. over Rs 8,400 crore, in the fresh issue.

This is in addition to recent fundraise by other quick commerce players, like Zepto. Nearly $3 billion of flows are expected to flow in quick commerce businesses as they scale up to take on the modern retail and kirana stores in cities and town in India beyond the top 15.

The online model of quick commerce rests on three key tenets: price, selection, and convenience.

As quick commerce expands, so will the requirement to set up dark stores and mother stores that service them in an area. There will also be the requirement of expanding stock keeping units, or SKUs. Companies like Blinkit have expanded from 5,000 SKUs in every neighbourhood two years ago to 25,000 at present. This almost at par with a modern day store in any town.

In addition, convenience is shifting the share of modern mid to premium retail buyers to quick service providers not just for their weekday requirements but also weekend needs.

Zomato Ltd. wants to quadruple its dark-store count to 2,000 in next two years. On the flipside, Swiggy is looking to raise the number of its dark stores to over 1,000, with Rs 1,000 crore from its IPO proceeds earmarked for this investment. Swiggy is said to have upsized its fresh equity raise up to Rs 5,000 crore.

To fund these plans, all are vying for the same pool of investors.

Zomato's share price has doubled since the beginning of the year, with the rise in stock valuation mainly attributed to quick commerce valuations.

The Deepinder Goyal-led company had over Rs 12,000 crore in cash in its book at the end of March 2024. It has started generating nearly Rs 200 crore of cash every quarter, but still wants to raise another $1 billion, most of which will go the quick commerce vertical.

To be clear, the company is yet to share the quantum and purpose of its QIP. The company has made it clear that it does not want to distribute this cash to the shareholders and would rather hold the cash.

As its quick commerce arm, Blinkit surpasses Zomato's food delivery gross order value in many cities with better turnover ratio and margins. Going forward the hyperlocal delivery app plans to add around 475 stores in the fiscal ending March, taking the total count to 1,000, and add another 1,000 in next two years.

Blinkit will need more cash to fund the capex for expansion. This aggressive expansion will need upfront capex because it will invest in capex when it partners with small businesses in a city to expand stores and it doesn't want to ride on their cash. Zomato seems to be creating a different balance sheet for Blinkit with cash balances that will help expansion in the next two–three years.