Online food delivery platform Zomato has completed the acquisition of the Indian operations of Uber Eats. Uber Eats is the food delivery business run by Uber, for around $350 million (Rs 2,485 crore).
Zomato completed the acquisition of Uber Eats’ India business in an all-stock arrangement on 21 January 2020. It will give the worldwide ride-hailing organization a 9.99 % stake in Zomato. Zomato was last esteemed at $3 billion when it raised $150 million from Ant Financial. This would put the valuation of the Uber Eats deals at about $300 million.
Industry experts have been questioning Zomato’s choice of getting loss-making Uber Eats India for $350 Mn. However, it is accepted that Zomato was not interested in revenues. But probably proceeded with the deal because of the popularity of Uber Eats.
The all-stock exchange will give the US-based ride-hailing organization about 10% shareholding in Gurgaon-based Zomato. Uber Eats will stop to exist as a different brand locally. Clients on its platform will be diverted to Zomato’s application. Zomato won’t absorb Uber Eats’ team in India. This implies around 100 executives will either be reallocated to Uber’s different verticals here or laid off.
What is the reason for the acquisition of Uber Eats?
Uber has failed to meet the expectations of the market after going public last year. And it has been covering or scaling down its loss-making units and geographies. With a cash burn of $20 million every month in India, the business was among the low-priority ones for the organization. A year ago, Uber said in its quarterly outcomes declaration that the Indian food delivery business has been a drag for it.
As indicated by regulatory disclosure made in India, Uber had anticipated an operating loss of Rs 2,197 crore in its food delivery business for the five months through December 2019. This loss was bigger than what was expected to be brought about by its center ride-hailing business. The loss was around Rs 1,645 crore as indicated by a valuation report arranged by KPMG subsidiary BSR and released in November.
Will Zomato become number 1?
For Zomato, which was at the second position behind Swiggy in the food-tech market, the acquisition will add muscle to its business, yet will likewise accompany its own set of challenges.
Uber Eats India was a far third in the segment with a 12% market share in the food delivery category, with 26,000 restaurants across 41 cities.
The deal is an appealing one for Zomato that has been looking to split Swiggy’s stronghold into the southern states. While Swiggy is minimal in front of Zomato in the food delivery space at present, Uber Eats coming onboard with Zomato will give more capability to take on Swiggy. And the combined entity will catch around 50-55 % market share.
Will India’s Foodtech segment be a duopoly now?
Started around 2015, the food tech-sector has been developing at a solid 150 % CAGR (Compound annual growth rate) and is currently a $4.6 billion market, as indicated by research and consultancy firm Redseer. However, in the course of recent months, the sector has seen rationalization.
Both Swiggy and Zomato have cut down on discounts in the last 2-3 months. And with the segment presently turning into a duopoly, there could be a further rationalization. What this could mean is lower discounts for customers, yet more incentives from these players.
The probability of Zomato Gold currently being available in more restaurants with the acquisition. NRAI (National Restaurants Association of India) keeps on being ideologically opposed to such discounting methods, an issue that saw a few NRAI member restaurants ‘logs out’ of Zomato a year ago.
For more information, visit: https://www.zomato.com/blog/uber-eats-india