A Zomato meals deliveryman moves through New Delhi. Photo: AFP/Nasir Kachroo/NurPhoto

As the Covid-19 pandemic continues to hold a tight grip over Mumbai, New Delhi, Chennai, Bangalore and other large cities, the services industries are increasingly looking to smaller towns for growth.

Food technology startups Swiggy and Zomato are increasing their presence in smaller cities and extending their partnerships with cloud kitchens for long-term growth.

A report by investment bank JM Financial says Swiggy touched the 5,000 orders per day mark in six to eight months in cities such as Patiala and Gorakhpur, while it took about three years to reach the same daily average in Gurugram, a satellite town adjoining Delhi, Business Standard reported.

Lower costs and quicker delivery time due to fewer traffic hassles in smaller cities has worked in favor of food delivery firms.

In the financial year 2020, the Naspers-backed startup launched services in a new city every nine days, as against 90 days in FY18, the report said. The costs have also dropped to nearly 1/10th to US$2,700 during the same period.

In 2019, its rival Zomato incurred half the cost in delivering orders in non-metro cities compared to a big cities, while the delivery time was three minutes faster.

Another factor that is encouraging these companies to explore smaller towns is the migration of techies from cities to their hometowns after most technology companies allowed people to work from home.

A report by Zomato stated that after the pandemic outbreak, one in every five of its city customers opened their app from a smaller town. Among those who relocated, one third started ordering food again from their new location.

The Zomato report said that during the early days of the pandemic, customers were apprehensive about contracting the virus through food delivery. But measures such as contactless payments and other safety protocols gradually allayed their fears and the order frequency picked up.

The report claimed the food delivery industry had largely recovered, with the sector clocking about 75% to 80% of pre-Covid GMV (gross merchandise value).

Restaurants that pivoted to online food delivery have recovered 70% of their pre-Covid volume, and nearly 5% added this facility during the lockdown.

But the dining out industry continues to be in dire straits due to social distancing norms and the fear of contracting the virus. They are operating at a mere 8% to 10% of pre-Covid levels, the Zomato report said.

It found that even in cities where lockdowns had been eased, only 17% of dining out restaurants were open for business. Of the 83% restaurants that are shut, 10% have shut permanently, while another 30% are at risk of closing down.

Now food delivery startups are tapping cloud kitchens to revive their business. Cloud kitchens are centralized cooking premises that cater to only online deliveries and do not have physical dining spaces.

According to a Redseer Management Consulting report, the industry is expected to grow to $2 billion in 2024 from $400 million in 2019.

For cloud kitchens, low overhead costs and tie-ups with food delivery aggregators is proving to be of great advantage. The pandemic and the fear of contracting the virus has provided a fillip to their business.

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