Food delivery platform Swiggy on Thursday said it has sold off its cloud kitchen business, Swiggy Access, to Kitchens@, in a share-swap deal. The move is part of the cost rationalisation measures undertaken by the company, which had earlier laid off 380 employees, with the market turning tough in terms of raising fresh venture funding.
“The growth rate for food delivery has slowed down versus our projections (along with many peer companies globally). This meant we needed to revisit our overall indirect costs to hit our profitability goals,” Sriharsha Majety, co-founder and CEO, Swiggy, said in an email to employees. He said the company was taking a harder look at some of its business verticals and shut down its meat vertical.
“…While we had already initiated actions on other indirect costs like infrastructure, office/facilities, etc, we needed to right-size our overall personnel costs also in line with the projections for the future,” Majety wrote.
Swiggy Access, which was started in 2017, worked as delivery-only spots, and was a programme that allowed restaurant partners to open kitchen spaces in areas where they weren’t present or did not operate in. That way, eateries could widen their reach and also lower the time taken for delivery.
Swiggy had invested about Rs 175 crore in the business between 2017 and 2019. It had even announced plans to infuse another Rs 75 crore by March 2020. The company had also invested in over 1 million square feet of real estate space across 14 cities and had said it would enter another 12 cities in 2020. However, the pandemic dampened those plans. Before the deal was announced on Thursday, its presence had been scaled down to four cities.
After the deal, Swiggy will become a stakeholder in Kitchens@. “The addition of Swiggy’s Access kitchens will bolster the reach and operations of Kitchens@’s in four cities across 52 locations and 700+ kitchens, providing customers with more convenient and efficient food delivery options,” said Junaiz Kizhakkayil, CEO of Kitchens@. He said his company has already secured letters of intent from over 40 national and international brands to partnerships, with a master franchise model.
Swiggy reported a net loss of Rs 3,628.9 crore in FY22, while its revenue from operations increased 125% to `5,704.9 crore during the period.
The capex for cloud kitchens is typically 2-3X lower than what dine-in restaurants require because of lower rental costs, analysts said. The cloud kitchens segment was forecast to grow 5-6X in gross merchandise value (GMV) to be about a $3-billion industry by 2025, up from $440 million in 2019.