Instacafe, Swiggy’s latest pilot, will offer pre-cooked snacks in certain pockets of Bengaluru and Hyderabad, much like Zepto Cafe does in Mumbai.
Swiggy’s Instamart arm is the latest to run a cafe-like division, ‘Instacafe’, after the much-publicised launch of a similar extension by rival Zepto through Zepto Cafe. Instacafe is the latest category expansion for Swiggy Instamart in its bid to turn profitable, as these items typically offer higher margins than grocery delivery.
Confirming the development to Moneycontrol, a Swiggy Instamart spokesperson likened Instacafe’s offerings to pre-made food that is available for purchase at supermarkets. Instacafe currently offers pre-made snacks such as puffs (Rs 59), toasties (Rs 79), baos (Rs 120), cold coffee (Rs 79), cookies (Rs 59), tarts (Rs 149), croissants (Rs 59) and more, priced between which customers can add to their Instamart cart, alongside their groceries orders.
The cafe also marks the latest expansion by Instamart — after launching its own private brands and later, electronics and mobile accessories. Adding categories over and above groceries will help Swiggy increase the basket size of customers, and thereby earn better margins on a per-order basis.
In response to queries from Moneycontrol, a Swiggy Instamart spokesperson said, “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.”
Targeting higher margins
Instacafe, which was first piloted in certain pockets of Hyderabad late last year, and then extended to Bengaluru around March this year, is already looking to add more items to its menu, a person aware of the company’s plans told Moneycontrol.
Currently in its pilot stage, Instacafe has about 60 stock-keeping units (SKUs) or items, which are only available in locations such as Bommanahalli and Bellandur in Bengaluru and a few areas of Hyderabad.
Most of the food items available on Instacafe are unbranded for now and are sourced directly by the dark store managers responsible for servicing a particular location, the people cited above added.
That is a key difference between Instacafe and Zepto Cafe, which buys from brands in bulk, ships it to dark stores, and later sells the snacks to customers. The latter has already tied up with brands such as Blue Tokai and Chaayos, which helps it offer a more elaborate and standardised menu.
While there are concerns that this could cannibalise Swiggy’s core business, the person cited above maintains that the food items on Instacafe are largely quick snacks and not meals — something Zepto has also previously said, stating that it is not getting into food delivery.
However, the menus of both companies seem to be expanding into larger meal options as well. While Zepto Cafe has already begun selling Thai Red Curry with steamed basmati rice (Rs 259), Instacafe has a few meal options like chicken fried rice (Rs 199) to choose from.
Selling items with higher margins has become imperative with several stakeholders, including founders and investors, questioning the business model of startups that claim to deliver in minutes. Consequently, these companies are looking to expand basket sizes, said analysts.
Declining AOVs in quick-commerce
However, Zomato and Ola had earlier gone down a similar route, with little to no success. Zomato, which had piloted 10-minute food delivery of similar items, shut it down earlier this year. Ola, which offered items such as pizza and rolls in 10 minutes in Bengaluru through its quick-commerce service Ola Dash, eventually shuttered it in June 2022.
Data shows that the average order value (AOV) for quick-commerce companies has largely been on a downward trend. Last week, Zomato-owned Blinkit, in its results for FY23, said that in Q4FY23, its AOV fell to Rs 522 from Rs 553 in Q3FY23 and Rs 568 in Q2FY23, and even below Rs 528 in Q1FY23.
Last week, when Swiggy co-founder and CEO Sriharsha Majety said the company’s food-delivery arm had turned profitable on an adjusted EBITDA level, he added that the company would be investing less in Instamart henceforth.
“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.