<aside> 👤 Sujoy Datta Product @Hike Messenger Linkedin, Email

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Idea

The plan is to scale up Swiggy’s marketplace by introducing tier-3 cities to its network. As a part of the operational testbed, the pilot project will be introduced to Jhansi*(Uttar Pradesh)*- a tier 3 city with a population of 36000 approximately(example). Once the extent of digitisation is a success, this model will be introduced in other tier 3 cities of India.

Exploring the problem

<aside> 💡 To explore the pilot initiative it is indeed essential to understand why food delivery apps do not position their traditional marketplace set up in tier 3 cities.

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1. The inherent mandate of food delivery using technology. As we know, the food delivery marketplace in India is largely centred around technology and applications. Considering the supply aspect, not only does being a Swiggy participant restaurant call for additional accountability in terms of registering their business on the app and exposing channels for expecting real-time orders.
   1. For a restaurant with daily revenue of INR 40k(assuming a quick food restaurant, to begin with) and with an initial positioning of 10 online orders per day(INR 300 average online order size) for the first quarter of pilot launch(assuming the audience is not used to online delivery at the time of launch), Swiggy will charge a 15% order commission on the total order bill.
   2. This narrows the data down to losing 15% on an average order size of INR 300 in the first quarter and equates to a monthly revenue gap of 13.5K. Tier 3 city restaurants are not very comfortable ideally acknowledging this revenue gap.
2. Predominant idea of family dinners and home cooking. The volumes of food orders and the average order value would be considered low for tier 3 cities considering the fact that-

   1. Most individuals tend to “snack out” as per Consumer Affordability in Tier-1, Tier-2 and Tier-3 Cities of India - An Empirical Study and only individuals(bachelors/college students) who are distant from their home. Hence the volumes are insufficient, both in # of orders or Rupees, to generate any interest in the minds of decision-makers of food delivery start-ups.

      

   2. Much more likely than proven, the audience of tier 3 cities finds the whole act of calling up their favourite dining restaurant/food store a bit more compatible as compared to deriving value out of omnichannel approaches to the marketplace. They would place orders ranging in methodologies where the price positioning of retail stores matches their affordability, and extent of the network.

Is it worth kickstarting a food-tech marketplace in a tier 3 city?

<aside> 💡 Even if the road is bumpy as per the data-driven, there are a few factors that can easily tackle the user behaviour linked to the reluctant attitude in terms of accepting a food tech service.

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• Network effects: The more users you get, the more useful/cheap our product becomes. Swiggy’s commitment and investment towards a faster, easier, and proper logistics network with a wide range of local delivery boys keep it apart from others. Additionally, the idea of connecting local restaurants with local customers to avoid too much waiting for food will be the icing on the cake to reduce the supply and demand acquisition cost.
• No barrier to entry: Once we have a strong network effect, it becomes increasingly difficult to enter or replicate the marketplace for other products in the food tech space. Swiggy’s idea to connect local foodies with local restaurants gave the brand advantage of an early mover.
• Efficiency: No inventory start exudes the factor that entire operations will be cheaper to operate and scale, to begin with. Swiggy pays for travel pay based on Distance or Time. It pays Rs 4 per KM for the first 4 km & Rs 6 per KM after the first 4 Km if it pays based on distance in tier 1 or 2 cities. However, promising a lower price to position the supply in a tier 3 city can effectively induce more delivery partners to be assured a state of income in tier 3 cities.
• Scalability: As per consumer behaviour and psychology- The consumer does not expect a multi-location retailer to adjust their price/product/assortment concerning city type and price, consumers expect such multiplication retailers to offer price/products/brands/categories assortment evenly across tier1, tier2, and tier3 cities. Exposing the tier 3 audience to ways of online food ordering can not only blatantly initiate a behaviour change of equating them to tier 2 and tier 3 audiences but also help Swiggy scale its operations without much effort or an altogether new business model.
  • There are 219 tier 3 cities in India, with an average population of 30k individuals. As we know the number of restaurants that would actually register them on the Swiggy marketplace will be very few, to begin with. Assuming 3 restaurants on average and an average monthly commission of 13.5k from a restaurant brings the city's monthly value to be 40.5k on average. 219 cities and if the marketplace performs well in the total accessible market, Swiggy has a chance to make INR 9 million, just by 10 online orders a day in a tier 3 city.
• Flexibility: No inventory means easier to pivot, and the introduction of new offers and digitised incentives just for a target segment localised to the constrained marketplace.

<aside> ✅ Considering the above factors, it looks favourable to expand Swiggy’s service to Tier 3 cities in India.

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Project Launch JTBD