ETtech Explainer: Swiggy's losses balloon despite moving towards improving economics

Time of India

a day ago

The company reiterated that it is past the expansionary phase in quick commerce. 'With nearly half our dark stores less than a year old, we're now shifting gears—from rapid expansion to consolidation and leverage,' it had said in its FY25 annual report, published earlier this week.
It even slowed down dark store additions in the April-June period, with only 41 stores being added to its network, compared to 316 in the January-March quarter. In an interaction with ET, Swiggy CFO Rahul Bothra said that any expansion from hereon will be a 'derivative of growth and not necessarily flag planting.'
During the company's earnings call, Instamart CEO Amitesh Jha said that the company can find near-term growth from the top 10-20 cities and will focus on that.
On the unit economics front, Swiggy said it was pushing higher average order values (AOVs) on Instamart. For the June quarter, AOVs increased 16% quarter-on-quarter (QoQ) to Rs 612.
To achieve higher AOVs, the company said it was focusing on Maxxsaver—its bulk order offering that lets users order a larger number of items with higher discounts. This helps the company save on last-mile logistics costs.
It also increased the minimum basket size on Instamart for free deliveries, resulting in the filtering out of low AOV orders.
In Q1, besides the heavy losses, Swiggy also burnt through more than Rs 1,000 crore in cash—the second consecutive quarter of it doing so.
For quick commerce, the company saw orders per dark store per day declining on a sequential basis to 985 from 1,190.
On a YoY basis, Instamart's gross order value (GOV) per square foot fell about 20% to Rs 13,163.
Swiggy also said that its operating losses for Instamart peaked in March. However, adjusted Ebitda loss for the June quarter came in at Rs 896 crore, up from Rs 840 crore in Q4FY25 and Rs 318 crore in Q1FY25.
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Swiggy added a significant number of dark stores in the March quarter, and the full cost of operating those new stores hit in Q1, before they had time to mature and become efficient.
Just like it did in its food delivery business, the company spent more on getting delivery partners on board during Q1 on account of seasonal challenges like monsoon and reverse migration.
Maxxsaver was fully rolled out in Q1, and Swiggy said that while it helped increase AOVs, it didn't boost contribution margins immediately.
Swiggy's fixed expenses jumped by Rs 56 crore compared to the previous quarter, mainly due to employee appraisals and hiring of senior executives.
Even though store expansion has slowed, the company continues to spend heavily on brand and performance marketing to compete with rivals, keeping overall costs high.
When Swiggy reported its losses for the April-June quarter, doubling to Rs 1,197 crore , it laid out a series of steps it had taken to improve profitability. But the high cash burn that the company is fraught with indicates that these measures may take some time to show their impact. For its quick commerce business , Instamart, Swiggy continued to guide for a contribution margin break-even between Q3FY26 and Q1FY27. Contribution refers to revenue minus the direct order fulfilment costs.Brokerages said that while Instamart's contribution margin is likely to improve going forward, Swiggy's falling cash balance remained a concern.As of June 30, Swiggy had a consolidated cash balance of Rs 5,354 crore, down from Rs 6,695 crore as of March 31 and Rs 8,183 crore as of December 31.'In our view, (Swiggy's) quick commerce contribution margins should improve sharply in the coming quarters with improvement in average throughput per store…cash balance is already down from around $1 billion in Q3FY25 to $620 million after Q1FY26. If capital expenditure and working capital investments do not fall sharply in the coming quarters, we worry cash exhaustion could continue to be significant,' HSBC Global Research said in a note on Friday.Swiggy's stock ended 2.85% down at Rs 392.3 on the BSE on Friday.