Swiggy Instamart doubles down on assortment strategy, flags ‘irrational’ quick commerce competition

Swiggy expects irrational competition in the cut-throat quick commerce space to be a headwind for its growth, as it plans to double down on its assortment play strategy and chase high-quality users. 

"Growth has many reasons for not happening. One of the primary is the irrationality in the market, which has impacted both the listed players in this particular space (quick commerce). We believe that irrationality will continue and will have a headwind on our growth, and is already factored in the contribution margin guidance," said Amitesh Jha, CEO, Swiggy Instamart in a post earnings call with analysts.

The comments come after the company's quick commerce revenue clocked marginal growth of 1% in its topline from the September quarter, despite it being a festive season. Instamart clocked revenue of Rs 1,052 crore in December quarter as compared to Rs 1038 crore in the previous quarter. The GOV on the segment grew 13% to Rs 7938 crore on an annual basis.

"If the question is, can we do more numbers, just because we want to show higher OPD (orders per day), yes, it can be easily done by simply putting money into what we call growth. We don't believe it is actually structural growth. The right structural growth is putting investment into an area that is sustainable over the long run... rather than just saying that, okay, let me buy growth because it allows me to say that I have done a higher OPD."

Swiggy’s quick commerce ambitions continue to exact a heavy financial toll, with Instamart’s adjusted EBITDA losses widening to Rs 908 crore in the December quarter—a sequential increase driven by aggressive capital allocation toward brand and performance marketing. The segment is still operating at a negative Contribution Margin of -2.5%, indicating that for every order fulfilled, the company is still absorbing costs at the operating level before corporate overheads.

However, Swiggy is not deterred by the slow growth and lower order frequency. It is focusing on building its assortment play and larger baskets by offering more and more SKU's using its Megapods network and Maxsaver initiatives. It reiterated its contribution margin breakeven by the first quarter of the coming financial year.

We have consciously chosen not to participate in deep-discount-driven, purely-volume-focussed growth that sacrifices AOVs and margins, shared the company in its shareholder letter. 

"One other thing that we have taken up as a very clear output of all of it is that we are not going to throw good money at bad growth. Yes, we may compromise bad growth... because we don't believe that it's going to be a sustainable advantage in the future," added Jha.