The difference between DoorDash and Indian peers Zomato and Swiggy is not in what the companies do⁠ — it’s where they do it

• It is unlikely that Zomato’s IPO, reportedly planned for 2021, may see the kind of excitement witnessed by DoorDash on Wall Street.
• The primary reason is that Zomato and Swiggy operate in a much less mature market, India.
• DoorDash is five years younger than Zomato but its business is bigger by more than three times compared to its Indian counterpart.
• In terms of valuation, DoorDash is 15 times bigger than Swiggy and Zomato.
• Check out the latest news and updates on Business Insider.

The blockbuster initial public offering (IPO) from DoorDash ⁠— a startup that delivers food just like Zomato and Swiggy ⁠in India⁠— saw a 90% jump on listing. The San Francisco-based startup’s valuation has jumped more than three times from the $16 billion reported before the IPO.

However, while Zomato⁠— which is reportedly planning an IPO in 2021⁠— and its fellow desi peer Swiggy can take a little heart from the success of DoorDash, there is very little benefit, at least immediately, beyond the ‘feel good factor’. The reason is that the companies operate in a much less mature market, India.

The first sign that DoorDash had a much better headstart than its Indian peers is the amount of time it took to become a unicorn (a term used to describe companies worth $1 billion).

All three food delivery majors became a unicorn in 2018.


Swiggy took much less time compared to Zomato because it entered when the market in India had matured a bit more and the concept of food delivery had gained some traction.

Food delivery business is on another scale in the US

Dalal Street may find it difficult to mirror the same kind of confidence, like the one for DoorDash witnessed on Wall Street, if and when Zomato hits the market with its share sale. The primary reason being that the market for food delivery in India is relatively too small.


*DoorDash last reported valuation before the IPO was $16 billion

DoorDash’s gross order value stood at $7.25 billion in the September 2020 quarter, recording an increase of 3.5 times over the same period in 2019. The total number of orders stood at 236 million versus 70 million orders in the same period last year.

DoorDash’s average order value comes at almost $31.

This is over five times higher than Zomato’s average order value of $5.5 (₹400) – this is the latest figure estimated by analysts, according to a Goldman Sachs report.

The same report also estimated Swiggy’s average order value at $5.

"With DoorDash's AOV of $30 vs $3-4 AOV for Zomato and Swiggy - that kind of makes it difficult for India to be a food-delivery oriented market, proving its worth in terms of bottomline. With ongoing talks of IPO in the market, that is the one big question being talked about," said Rohan Agarwal, a director at RedSeer.

The silver lining for Zomato and Swiggy

Food deliveries in India have recovered sharply since the onset of the COVID-19 pandemic. A Goldman Sachs report stated that profitability for both Zomato and Swiggy is now closer by a year.

More importantly, customers are willing to pay a lot more for these deliveries. As a result of these measures, Zomato reported a contribution margin increase of ₹27 per order in the June 2020 quarter, as compared to a loss of ₹47 in the June 2019 quarter, according to a report from JM Financial dated November 27.

The margin may improve further as both companies are expanding their business in smaller cities where the cost of operations, including the salaries for the delivery executives, are much lesser.

All this is good but nowhere close to the scale of DoorDash, not yet. Even if a glorious run follows hereon, as Goldman Sachs put it, the GMV for Zomato, five years from now, is likely to $9.8 billion, a little over what DoorDash makes right now.

SEE ALSO:

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Ahead of its imminent IPO – Zomato CEO says food delivery in India has reached pre-COVID levels