Your Next Food Order Could Cost More Due to Fuel

Recent fuel price increases are impacting the economics of food delivery services, with Swiggy potentially facing a nearly 12% earnings downgrade. Eternal may experience a smaller, 4-5% downgrade. These estimations come from Elara Securities, highlighting the sensitivity of delivery platforms to fuel expenditure.

Delivery costs for Swiggy average around Rs 55 per order, while for Eternal, it's approximately Rs 44, with fuel constituting about 20% of these expenses. Even a 4% fuel price hike translates to a per-order fuel impact of around Rs 0.44. For Swiggy, processing roughly 1.4 billion orders annually, this aggregated EBITDA drag could reach Rs 43.5 crore for FY27.

Should fuel prices escalate further by Rs 10 per litre, the per-order impact could rise to Rs 1-1.2. This scenario could lead to a 10-12% earnings downgrade for Swiggy and a 4-5% for Eternal. Swiggy's proximity to breakeven in quick commerce offers less buffer to absorb such shocks compared to Eternal's more established profitability.

Consumers are likely to bear the brunt through subtle increases in delivery fees, platform charges, or handling fees. For quick commerce, higher costs could moderate the frequency of smaller orders, as the convenience premium may not justify increased delivery expenses. Second-order effects could also compress household discretionary budgets, impacting order frequency and value.

Both platforms are investing in electric vehicles (EVs) to mitigate fuel cost volatility, with EVs accounting for an estimated 30% of deliveries. Eternal, with its larger scale and premium customer base, is seen as more resilient and has a BUY rating from Elara Securities, with a target price of Rs 400.