A few months ago, Uber Eats beat a hasty retreat from India. In a sense, it was the last of the Mohicans. A cohort of foreign food delivery startups that hungrily eyed India as their next big market but discovered that making headway in this space, much less winning it, was too big a challenge.

The sale sale The Ken Zomato swallows Uber Eats India Read more  of Uber Eats’ Indian business to Zomato, in an all-stock deal, saw the Indian food delivery space settle into what seemed like an impenetrable Swiggy-Zomato duopoly. 

That status quo, though, lasted barely a few months. 

Even as the Covid-19 pandemic brought both Swiggy and Zomato to their knees, with order volumes dropping 70%, Amazon barrelled into the picture. On 21 May, it launched launched TechCrunch Amazon launches food delivery service in India Read more  food delivery operations in Bengaluru—Swiggy’s backyard. The impact this could have is lost on no one. “Amazon’s entry is nothing less than an existential threat for us,” a senior Zomato executive quipped to The Ken

While this may well turn out to be true, the problems for Zomato and Swiggy began well before Amazon. Contrary to what one might expect in a monopoly or duopoly, where the last ones standing make extortionate profit margins, both Swiggy and Zomato have been deeply unprofitable. 

Over the last two years, when these companies were trying to grow and win the market, they were each burning $25-30 million per month. They continued to burn an estimated $10-15 million per month even after the Uber Eats exit. Despite the absence of deep discounting, investing for growth, and cutthroat competition, profitability remains a distant dream. 

Loss leaders

In the year ended March 2019, Zomato reported a loss of $294 million on revenues of $206 million. In the same period, Swiggy’s revenue stood at $149.5 million, while racking up losses of $313.1 million

Their struggles make Amazon’s entry, at least on the face of it, a head-scratcher. The Jeff Bezos-led company is entering a market blighted by brutal unit economics at a time when a global pandemic has ravaged the industry. And this is despite failing with similar attempts in other international markets like the UK, with no meaningful success in its home base of the US either. 

To understand why, we need to understand two businesses—food delivery and Amazon itself.