The post, allegedly written by two of Swiggy’s sales people along with two former employees, called the company a “House of cards.” It went viral on social media and almost everyone in the Indian startup ecosystem has been going back and forth on it. Tech in Asia could neither verify the claims independently nor identify the bloggers.
Swiggy has just responded to the post in its own blog, rubbishing the accusations made against it. In a post written by CEO Sriharsha Majety, Swiggy hinted at foul play, saying that it has “good reason” to disbelieve that its former employees were behind the anonymous post and that it was “falsified with completely incorrect data and details.”
Before we get into the accusations and the counter-punches landed, a quick background on Swiggy and why this matters.
Swiggy bucked the trend.
One of the striking stories of last year was the death of several food delivery startups in India. Some starved due to a funding crunch, others due to poor unit economics. The failure of the well-funded TinyOwl was a stark example. The startup, which raised about US$28 million in total funding, couldn’t solve core problems of delivery costs, negative margins, and unreliable food quality from restaurants it aggregated. It finally shut down after a distress merger with logistics company Runnr.
Zupermeal, iTiffin, BiteClub, Zeppery, Rocket Internet’s Foodpanda, Dazo, and Eatlo are a few others in the food delivery business that shut down.
Swiggy bucked the trend. That’s partly thanks to its heavily-loaded investors, who didn’t let the funding pipe go dry. Founded in August 2014 – during the peak of a funding gluttony in India – the startup is backed by Accel Partners, Bessemer Venture Partners, and many other VCs, along with Naspers leading a US$80 million series E funding round. In total, Swiggy has raised US$155.5 million in equity funding.
At the time of its last funding round in May this year, Naspers head of investments in India Ashutosh Sharma said his firm was “attracted to the company’s [Swiggy’s] exceptional execution in disrupting online food ordering and delivery in India while many players are struggling.”
This is why the anonymous blog sent startuppers in India into a tizzy today.
The following are the main accusations in the anonymous blog and Swiggy’s response to each of them:
Investor deck fudged?
The blog says Swiggy lied to investors about order volumes during its last fund-raise. It shaved the December orders-per-day number so that it could show a linear growth curve. An Excel sheet reproduced in the blog claims to have the real numbers, which show a dip in orders in January, compared to December.
Swiggy responds by publishing a bar chart of its investor deck showing monthly orders-per-day. “Why would the investor deck report lower numbers?” asks Swiggy. “The excel sheet screenshot is a complete fabrication as is a lot more in the post.”
The Swiggy Sales blog claims that restaurant owners are onboarded with low commission rates, then arm-twisted every few months to raise the commissions.
…it eats into our conscience, and takes away a little piece of us every time we are made to do this.
“In the sales team, one of our core jobs is to sign up restaurants for the Swiggy platform. This largely includes signing contracts that we know we are going to go back and renegotiate every few months. That is highly stressful, it eats into our conscience, and takes away a little piece of us every time we are made to do this. Most of these restaurant owners are small businessmen and they can’t see how they are being taken for a ride. And unfortunately, if we are to retain our jobs, we can’t tell them either.”
Swiggy’s response to this is that there is a commercial give-and-take on both sides, as there is in any business. “There is no cheating, no deceit. We have fuelled the growth of many restaurants by exposing them to a large base of consumers on our platform – and many restaurants have grown because of us. We take pride in this.”
On the face of it, it does seem like a reasonable proposition to raise commission rates as order volumes go up. And one would imagine that a restaurant is free to opt out if it does not like the terms at the time of renegotiating a contract. So it’s not clear how they are being “taken for a ride.”
The blog says restaurant owners are sucked in with lies about market share and order volumes. Swiggy’s response is that it’s a clear market leader and communicate that to restaurants. “Nobody will stay on the platform if they don’t see value in this.”
Conflict of interest?
The blog points to a conflict of interest in Swiggy launching its own kitchen in Koramangala – Bangalore’s hottest tech hub – and telling restaurants that it doesn’t compete with them. “Instead of growing our restaurant partner’s businesses, we recently took the best business zone in Bangalore and started intentionally routing all the users to order from Bowl Company — our own private label kitchen. The Bowl Company is the top search result in all of Koramangala now. This just directly hits at the heart of restaurants we “partnered” with to grow our business in the first place,” says the blog.
Swiggy’s response is that its kitchen, which serves Koramangala and not other parts of Bangalore, fills prevailing gaps.
“These gaps include poor supply of restaurants in some areas of the city, or use-cases, or occasions that aren’t getting solved in the near future by any of our partners. Our intention is to boost the number of times a consumer can use Swiggy over the long term, hence we are always maniacally focussed about market creation a lot more than margin creation which seems to be the narrative here. If we introduce brands that don’t boost repeats but just order numbers, we don’t believe there’s a case for that brand to exist … We don’t embark on any of these initiatives with a cannibalization approach,” says Swiggy.
It’s hard to fathom how an area like Koramangala in Bangalore can have a poor supply because it has a plethora of restaurants of all kinds as well as street-side eateries with multiple cuisines, both Indian and international, catering to the tech and student crowd.
But the blog and Swiggy’s response do provide an inside look at the food delivery business and its challenges.