The Zomato UberEats India Acquisition
Most of us have ordered from the food delivery application UberEats, introduced in India in 2017, by Uber. But how many of us knew that UberEats India was operating at a loss of over 1B $ in November 2019? On 21 January 2020, Zomato and UberEats India announced the acquisition of UberEats India by the former for 350M $ in an all-stock deal. Uber ended up with a 9.99% stake in Zomato.
This came as a surprise to many, because the food delivery service we knew, used massive discounting techniques to attract customers, and increase their user base. One would think that with that kind of marketing, they were sure to work with rising profits as discounts were the key highlights of UberEats India. But the flaws in deep discounting is what drove them to losses and ultimately out of the Indian markets itself with Zomato acquiring UberEats India.
Another factor that might have led to the decline of UberEats India is the disadvantage of being a global company, said Vivek Sundar, COO of Swiggy. While global companies have the scale, capability, and capital, it is difficult for them to customize to the Indian markets, i.e., a glocal-local problem.
The truth is, UberEats India was not even in the race to become the dominant player in the ever-competitive online food delivery segment of the Indian markets. With the cut-throat competition between Swiggy and Zomato, both commanding over 80% of the online food delivery segment, and recording over 1.4M and 1.2M orders a day, UberEats was far behind with only over 4 lakh orders a day. It is known that UberEats India was looking to exit the Indian markets and was under discussions with Swiggy. Still, it didn’t go through due to differences in valuations of the company.
In what looked like a vertical acquisition, with many driving forces leading to the exit of UberEats from India, the acquisition’s timing couldn’t be better. Although Swiggy and Zomato were in a neck-to-neck battle for the top position, Swiggy was doing a tad bit better than Zomato in terms of revenues and expenses, reduced advertising costs, and employee benefits. The acquisition came just as Swiggy claimed to have achieved a dominant position in India’s food delivery segment.
With the acquisition, Zomato is now looking to cover over 50–55% of the Indian markets, focusing on profitability. The purchase has come across as Zomato’s attempt to strengthen its market capitalization and expand its user base in India, not to mention the tremendous amount of customer data that comes with the acquisition. It gives Zomato a greater negotiating power with the restaurants, reducing the crash and burn, and losses significantly. Another way the purchase benefits Zomato is the potential introduction of SoftBank investments as they were in talks with Swiggy for the same, but it didn’t materialize. Now with Zomato becoming the food tech hub due to increased market capitalization through the UberEats India acquisition, it is a possibility. It is one of the most attractive deals for Zomato that can help it make its way into the South Indian online food delivery market, cracking Swiggy’s stronghold in the same.
While Zomato hasn’t shied away from acquiring start-ups, with a history of about 12 acquisitions, all in the domain of online food delivery and logistics, made this an expected move that seems to be working out for the company based on historical data. While the most recent acquisition may have increased the market capitalization of Zomato in India, the future of the online food delivery segment is very uncertain. The latest threat being the introduction of Amazon Food by Amazon this February, in selected locations of Bangalore. Although they have only started recently in India in the initial stages, with the massive user base that Amazon has in India, it is predictable that the dynamics are sure to change with the advent of Amazon Food throughout India. What kind of a future can we expect for the other competitors of the segment? Will Zomato try to acquire its way out of this as well? Or would both Zomato and Swiggy bow down to Amazon in due course?
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