BENGALURU :
Zomato Media Pvt. Ltd has acquired the Indian business of Uber Eats, the food delivery business of the ride-sharing giant, in an all-stock deal, adding a powerful new investor to its shareholder roster in its battle against arch-rival Swiggy for supremacy in India.
Uber will get a 10% stake in Zomato in a deal that values Uber Eats at $300-350 million, a person familiar with the matter said on condition of anonymity. In January, Zomato raised $150 million in fresh capital at a valuation of $3 billion from existing investor Ant Financial.
The Uber Eats app has been shut in India and the app now directs food delivery customers to sign up for Zomato. Delivery workers working with Uber Eats will also move to Zomato, the companies said.
Despite investing millions of dollars, Uber Eats had failed to make a dent in the food delivery market dominated by Swiggy and Zomato. Uber Eats had been looking for a buyer for at least a year, and the deal with Zomato is essentially a distress sale.
“This deal is a reminder for global companies and startups that in many industries, they are going to need a local player partnership to (play) the market better,” said Sanchit Vir Gogia, CEO of advisory firm Greyhound Research. “There is also a small slice of customers, who may have moved to Uber Eats due to bad experience with either Swiggy or Zomato. Now these users will be back with Zomato.”
Uber has seen its shares fall by more than 16% since it went public in the US last May. Despite starting out in 2009, Uber is still a loss-making firm. Its disappointing IPO has increased pressure on chief executive Dara Khosrowshahi to cut costs, especially in the food delivery business.
Khosrowshahi said in a statement that India “remains an exceptionally important market to Uber” and the company will continue to invest in its transportation business here. In ride hailing, Uber competes with Ola in India.
In food delivery, Zomato is locked in a bruising battle with Swiggy that has brought heady revenue growth at the two companies, but also led to heavy losses over the past three years. In the first half of 2019, Zomato and Swiggy were burning $50-60 million every month on discounts, marketing, logistics and other expenses.
Over the past six months, both companies have cut discounts. Zomato now burns closer to $20 million a month, Mint reported in October.
Though the acquisition of Uber Eats will not significantly boost Zomato’s market share, the addition of Uber as a shareholder may prove to be useful over the coming years, as a funding winter takes hold for internet startups.
The Uber-Zomato deal also signals maturity in the food delivery market with space for new firms dwindling, said analysts and investors.
“When any tech industry reaches maturity, there have been examples that it turns into a duopoly,” said Gogia.
Anup Jain, managing partner at Orios Venture Partners, said, “This is because large players in food and grocery delivery have already established market dominance in the space and they will continue to mop up a majority of the funding.”
Source: Livemint
