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When Zomato met Uber Eats: Things to expect!

Recovering with the competition, Zomato had a wave of glory when Uber Eats became a part.

According to the updates from Mumbai/Bangalore, online food delivery and restaurant discovery platform, Zomato has acquired the Indian operations of Uber Eats. The food delivery business run by Uber, for around $350 million (Rs 2,485 crore), two people in the know of the deal said, “

The all-stock transaction will give the US-based ride-hailing company about 10% shareholding in Gurgaon-based Zomato, they told ET. Uber Eats will cease to exist as a separate brand locally and users on its platform will be redirected to Zomato’s app, said one of the people privy to the details. Zomato will not absorb Uber Eats’ team in India. “

This means around 100 executives will either be reallocated to Uber’s other verticals here or laid off. Just like merging of the PSBs’ the layoff doesn’t seem to affect Uber Eats.

The Upright Collaboration

Zomato and Uber declined to comment when ET contacted them. The transaction, which has been in the works for more than a year, marks the first big consolidation move in the hotly contested and cash-intensive online food-delivery market, led by Swiggy and Zomato.

Blending the analytics, the combined entity of Zomato and Uber Eats India is expected to cross more than a 50-55% market in terms of the number and value of the order.  Pulling orders ahead of the very competitor Swiggy.

“The deal is signed and customers are going to be directed away from Uber Eats to Zomato,” said one of the people familiar with the matter.

Zomato, he said, expects to transition 90% of Uber Eats users onto its platform.

“For Zomato, buying the distant third player helps it consolidate the market pushes it ahead of its competitor Swiggy. It is one less competition for the company to deal with,” said the second person.

The Local Clarifications!

“In parts of Tamil Nadu, Kerala, and Madhya Pradesh, Uber Eats has a stronger foothold compared to Zomato with an about 30% market share,” an Uber executive, who didn’t want to be named, told ET.

Further adding to the news, the executive also specifies that the acquisition, therefore, will give increased access to Zomato in certain micro-markets.

The Uber Eats buyout comes on the back of Zomato’s latest fundraising led by existing investor Ant Financial, an Alibaba affiliate, which pumped in $150 million at a $3 billion valuation.

Read More: GST On Restaurants: Know About New Tax Rates On Food Bills On AC, Non-AC, Starred Hotels, Eateries

Why Collaboration?

Uber which has underperformed the market after going public last year, has been shuttering or downsizing its loss-making units and geographies. With a cash burn of $20 million per month in India, the business was among the low-priority ones for the company. Last year, Uber said in its quarterly results announcement that the Indian food delivery business has been a drag for it.

According to regulatory disclosures made in India, Uber had projected an operating loss of Rs 2,197 crore in its food delivery business for the five months through December 2019.

The loss seemed to have crossed the unexpected belt and hit the business affecting Rs 1,645 crore according to a valuation report prepared by KPMG affiliate BSR and released in November. Uber Eats has been on the block for a year. In February last year, Uber had come close to selling the business to Swiggy but the deal fell through, as reported by ET.

No Other Choices?

Over the last six months, Uber chief Dara Khosrowshahi has been flagging analysts during quarterly calls about India’s food delivery market being very competitive and admitted to being the number three player in the space.

In fact, since early last year, the company had started its cutbacks. It had halved its annual cash allocation to the food-delivery business in India to $90-120 million, which took a direct impact on the order numbers.

At the same time, Uber’s India rival Ola too had pulled its focus away from its food-delivery business, Foodpanda, and started to sell private brands on marketplaces.

Uber entered the food delivery business in 2017 when Swiggy and Zomato had already roped in major restaurants and chains in exclusive partnerships. Uber relied heavily on discounting to acquire and retain users.

While it has been able to establish market leadership in some small towns and cities, the two larger food delivery companies continued to fight for market leadership in some small towns and cities, the two larger food delivery companies continued to fight for market leadership.

 

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