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Swiggy expects its cloud kitchen to grow exponentially

In a conversation with The Passage, CEO of Swiggy Access, Vishal Bhatia, explains their cloud kitchen model and elaborates on why the company is ready to bet big on the concept

Oct 18, 2018 by Avanish Tiwary
Swiggy expects its cloud kitchen to grow exponentially

The Indian food delivery company, Swiggy that was valued at USD 1.3 billion during its USD 210 million fund infusion from Naspers and Yuri Milner-led DST Global, has expanded its cloud kitchen business called Swiggy Access to four cities.

New-Delhi based Zomato, its direct competitor tried to operate a similar cloud kitchen model, providing kitchen space and infrastructure to restaurant partners, but it had to wrap up the pilot, saying it did not have enough experience in this space.

We speak to Vishal Bhatia, the newly appointed CEO of Swiggy Access, who takes care of new supply business of the company. Swiggy Access is one of the products to come out of the new supply line vertical. Bhatia said, the business proposition for cloud kitchen, a.k.a. Swiggy Access is so big that it was important to open a different business under Swiggy.

Vishal Bhatia
Vishal Bhatia
Edited excerpts:

The Passage (TP): How were you able to crack the task of providing kitchen space to restaurants as well as launch them in different cities?

Vishal Bhatia (VB): One of the things we were very keen to do, given the category development in the country, is to incubate the right kind of supply so consumers get the right kind of choices. India has one of the lowest restaurant-to-population ratio. It just goes on to show that the consumers across the country do not get access to enough food choices.

We also saw a lot of growth happening on the platform and delivery has become a really important part of both the consumers’ lives as well as a restaurant’s business model. As we scale up further to solve the issue of lack of supply, we created an independent business called Swiggy Access, where we curate quality restaurants and take them to places where they can meet the consumers’ appetite, which is plenty in the country.

We started this towards the end of last year in one location and as things stand today we have 30 restaurant partners in four cities right now. The plan is to grow this to 300 restaurants in 8-10 cities in the next 6-9 months.

We are sure we will achieve this target as the opportunity is fairly large and limitless.

TP: How has the response been from restaurants?

VB: We only have two metrics to judge this: whether restaurants are unhappy with our service and want to leave or want to continue with us. Our churn rate is less than 10%, more than 90% of restaurant partners have stuck with us. Almost 50-70% of partners are discussing to open a second or third location with us.

The success of this program is to solve consumer’s gap and also to make sure partners are succeeding. Thus, we make sure that everything we do makes a viable business sense for restaurant partners. I think that has been one of the things why our churn rate is low and that many of them want to increase location with us.

What are the typical services that you offer these restaurants?

Our internal research tells us the kind of gaps in terms of cuisines that exist in a specific area, or the hyperlocal area. Every restaurant on our marketplace platform caters to an area of 4-6 kilometres. As a result, we end up breaking the country into these hyperlocal zones of four kilometres each and we look at gaps in each of these zones. Once we identify what’s lacking in a specific zone, we go to the right kind of restaurant partner that can plug this gap ensuring quality. That has been a hallmark of our program. We have been working with some good brands that solve consumer gaps.

While we talk to partners, we start building infrastructure. Once the partner is on-board we work with the partner to build a certain kind of kitchen for them. These kitchens basically include all the facility inside, exhaust fan, electricity, common gas pipes, drainage system, etc. Not only do we take care of the property, we also look at providing facilities that can ensure hygiene and ease of operation for these restaurant partners.

We encourage our partners to bring their own cooking equipment, because we believe only the partner will know the kind of equipment they are comfortable with and we don’t want to take charge of that. They also bring their own team in the whole system.

TP: Zomato also tried this model but failed at it. Do restaurants just need infrastructure and logistics to expand?

VB: I don’t think I would be the right person to speak about Zomato’s program. But I can tell you when we talk to our restaurant partners, we tell them we are trying to solve consumer gaps as well as increase your sales points, thus removing their pain point.

Let’s talk about the time when Swiggy Access was not available. To expand from one location to another, the only choice a restaurant had was to open a restaurant in another area. They have no scientific data to know the best location for a new branch. We can actually tell these restaurants that your kind of food will do well in this location because our data tells us this area has a lack of cuisine that you cook.

Moreover, restaurant owners have to put in a huge amount of time in terms of property management, signing leases, putting deposits upfront and then managing these properties. We have taken these off the plate for them. Now since these are delivery only kitchens, they don’t need to take care of seating or service staff. Delivery logistics is something we are known for, so that’s an expertise that restaurant partners expect from us. That is the other pain point we solve for them.

TP: If you don't want to talk directly about Zomato, tell me what could wrong for a delivery company wanting to start this kind of cloud kitchen?

VB: I wish I knew the answer to this. All I can say right now is, “I don’t know.”

One thing that can totally ruin the company’s operation in such a business is if you are trying to push a restaurant in an area where there is no demand for either that restaurant’s brand or the cuisine that it cooks. Imagine a neighbourhood that has 100 South Indian restaurants, and we bring another there. It is most likely going to fail. If there are no gaps and you are trying to push players because of your own conviction, without any data or research backing it, the plan will fail.

Data plays a big role in all of this. Before we started, the amount of data science and analytical work we undertook took us more than a couple of months. Answers to questions such as where the location should be, which restaurant will be best suited for a particular zone, are revealed in our research. It is an intense effort and not frivolous at all.

Now we have taken a South Indian restaurant, Vasudev Adiga’s to Delhi and we were able to do that because we understood the gap in the Delhi market after talking to consumers there.

Many a times we take subjectivity out of the meeting room and listen to what the data says. We all have our favourite restaurant brands and cuisines that we like, but in this business that has to take a back step.

TP: How big is the team for Access?

VB: We have a dedicated team for Access, that constitutes team for infrastructure, partner engagement team that works towards on-boarding partners. We have got our own promotional team that works behind the scenes. The mandate for creating new supplies in the market was large enough for us to warrant a stand-alone business within Swiggy. This is basically because we wanted this to be done in a serious manner.

TP: Are you also going to start hyperlocal business?

VB: There is obviously a lot of talk around this. I don’t think there is any merit in us talking about this now. As a business we keep working on multiple ideas, initiatives and keep testing out things ahead of time. There are a lot of combinations that we test at the idea stage. That is all I would like to say at this point of time. There are a lot we keep talking about internally, but we will talk externally when we have something concrete to talk about.

TP: But is this the direction as a company Swiggy would like to go towards in the future?

VB: We are here to solve consumer issues. If there is a way we can serve consumers meaningfully using our strength, I guess we can look at it. But there has to be a demand for it.

TP: Recently, salary of delivery executives was increased exponentially by FoodPanda. When we talked to food delivery executives from across platforms, we found many were planning to move to FoodPanda. Will this poaching based on predatory salary become a norm?

VB: This industry is witnessing hypergrowth and I don’t think at any stage we can talk about organic growth in the food delivery sector.

I am not sure what your research showed, but I would say the industry is growing rapidly for delivery executives to grow, for consumers to get better choices and the restaurant partners to see the proportionate growth.

We have about 90,000 delivery executives, one of the largest fleets. If you look at the retention and loyalty level, you would know we do much more than just offer hefty money. And that’s where I would like to leave this question.

TP: I am sure you need many more delivery executives.

VB: Given that we are growing at such a rapid stage, to meet the consumer demand we have to hire more.

TP: On weekends we still find that there is an issue about delivery getting mixed and getting delayed. Does it happen at a large scale?

VB: There are several demand patterns that are there in the industry and on weekends people like to indulge more than weekdays, so yes demand does spike up. But we will have to check if this results in a higher error rate of orders getting mixed up.

Avanish Tiwary

Avanish Tiwary is a Bangalore-based tech journalist. He focuses on emerging Indian startups and unicorns. He can be reached at avanish.tiwary@thepassage.cc.

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