The COVID-19 pandemic that brought many businesses to a near standstill forced food delivery unicorn Swiggy to scale down three-fourths of its cloud kitchen footprint, Sriharsha Majety, the food delivery company’s co-founder and CEO, said.
In an interaction with Harsh Mariwala, chairperson of Marico, at the sixth edition of the ASCENT Foundation e-conclave, Majety said the decision to expand the cloud kitchen business looked like one of his ‘worst investments decisions’.
“In the cloud kitchen business where we were both working with restaurants to expand their infrastructure as well as trying out some brands on our own, the expansion was fast and at the same time, there were multiple headwinds concerning the assumptions behind the business. We had just completed the rollout of the 120th kitchen, these things take a fair amount of CAPEX, and bang smack, we landed in the middle of COVID-19. That looked like the worst decision in investment history in start-ups,” he said.
The cloud kitchen business is now picking up, he added.
Both Swiggy and Zomato had tried their hands at running their cloud kitchen brands but deprioritized it after a period of trial and error.
Swiggy’s first cloud kitchen vertical Swiggy Access offered plug-and-play kitchens to partner restaurants to help them expand to new localities and cities. It later rolled out a new brand called BrandWorks, which partnered with fine dining restaurants to co-create delivery-only brands and menus. However, as the pandemic forced lockdowns across the country, the company had to shut many of its cloud kitchens and make multiple rounds of layoffs.
Zomato had shut down its cloud-kitchen program Zomato Infrastructure Services (ZIS) in 2018 and instead, invested in Bengaluru-based cloud kitchen company Loyal Hospitality for an exclusive partnership. However, Zomato exited the company within two years.
Majety said hiring too fast and not keeping up with the increasing process complexities were his two other major mistakes while building the company.
“There was a time when we were growing 3x year-on-year, and we needed more talent to be able to take it from there. Those were times when we were stress-tested and our talent density has been stress tested in terms of the exact deliberate fit you may want. In 2018-19, we hired too fast and we had to figure out how to make our process stronger to make sure the talent density comes back again,” he said.
Majety said he witnessed a massive breakdown of communication as the organization did not account for the increasing process complexities.
“When things are small and everything gets done through tribal knowledge and relationships people build informally, you just believe that whatever worked for 500 works for 4000 also…One of the things that I’ve reminded myself is to keep taking a step back and be the chief complexity reduction officer… I’ve to take that role very seriously now,” he added.