India's Grocery Race to the Bottom! Eternal & Swiggy Stocks Crash Amidst Brutal Discount War - Is Profitability Dead?

The Indian online grocery delivery market is experiencing a fierce competition, causing significant stock drops for key players. Eternal Ltd.'s shares plunged nearly 4% last week, hitting a three-month low, due to rising rivalry from giants like Amazon.com Inc. and Flipkart India Pvt. Swiggy Ltd. has also seen its stock decline for four consecutive weeks. This pressure is driven by quick-commerce firms aggressively ramping up discounting strategies, promising delivery in as little as 10 minutes. This price war is fueling concerns that profitability for these delivery firms will remain under strain, especially after second-quarter earnings missed expectations and companies signalled a focus on growth over margins. This sentiment could weigh heavily on investor confidence ahead of Swiggy's planned follow-on share sale exceeding $1 billion and Zepto Pvt. Ltd.'s upcoming initial public offer (IPO), both aimed at securing market share. "The quick commerce market is not infinitely expanding," noted Manu Rishi Guptha, a portfolio manager at MRG Capital. "For as long as there is cash to burn, it’s going to be a rapid race to the bottom." He anticipates growth will slow significantly once companies attempt to increase charges to achieve profitability. Evidence of this trend includes Swiggy’s Instamart and Zepto recently removing some charges and lowering minimum order values for free deliveries. Jefferies reported more aggressive discounting across categories, with Amazon Now offering the highest discounts, followed by DMart Ready, Swiggy’s Maxxsaver, and Flipkart Minutes.

Impact This news directly impacts the Indian stock market by pressuring the valuations of companies in the rapidly growing e-commerce and quick-commerce sectors. The focus on discount wars over profitability can deter investors seeking stable returns, potentially leading to broader market sentiment shifts concerning tech-dependent businesses. The upcoming fundraising efforts by Swiggy and Zepto might face challenges securing desired valuations if this trend persists. Rating: 7/10

Difficult Terms: Quick-commerce: A business model focused on delivering small orders, like groceries, within a very short timeframe, typically 10-30 minutes. Discounting: The practice of reducing prices below the usual or list price to attract customers. Profitability: The ability of a business to earn a profit, measured by comparing revenue to expenses. Margins: The difference between the selling price of a product or service and the cost of producing it, indicating profitability. Investor sentiment: The general attitude of investors towards a particular security, market, or asset class, influencing buying and selling decisions. Follow-on share sale: The issuance of additional shares by a company that is already publicly traded. Initial Public Offering (IPO): The process by which a private company first offers its shares to the public in exchange for capital.