The just-announced acquisition of Uber Eats’ Indian operations by Zomato, while big news in the Indian and global food delivery industry, shouldn’t come as a surprise. It follows similar trends that have been playing out in the global food delivery industry. It is also reflective of technology trends in India, where Amazon-Flipkart in the e-commerce and Uber-Ola in the ride-hailing space have essentially made their respective markets a duopoly. With Zomato’s acquisition of Uber Eats, battle lines in the food delivery space have been (re)drawn as Swiggy and Zomato battle it out for supremacy.
An Evolving Market
The entry of Uber Eats into the Indian market in 2017 raised eyebrows right from the start. How was it planning to break the stronghold of established and popular players like Swiggy and Zomato?
Uber Eats followed much the same strategy as any other food delivery company would in a competitive market; predatory pricing through deep discounting for customers, high commissions for restaurants and generous wages for riders. This strategy might have worked had Uber Eats had a sustainable profit model, but it didn’t. Uber Eats burnt through investor cash, a development that was equally true for Zomato and Swiggy.
The extremely price-sensitive Indian market was only loyal till the discounts continued, which translated to Uber Eats needing to have deep enough pockets to soak up the accumulating losses. At some point, the offers and coffers dried up.
Up For Sale
Early in 2019, Swiggy was reportedly interested in acquiring Uber Eats to strengthen its dominant position. However, that deal fell through due to differences related to Uber Eats’ valuation, Uber’s stake in Swiggy, and Uber’s IPO at the same time. Later in the year, Amazon India announced its intention of launching food delivery services in the country. Naturally, industry experts linked this announcement with Amazon wanting to acquire Uber Eats, seeing it as the most straightforward way for Amazon to enter the Indian market. Subsequently, not much transpired in this regard.
By the end of 2019, Uber Eats India accounted for only about 3% of the company’s global gross bookings but was bleeding more than 25% of its EBITDA, projected at ₹2,197crore (approximately $308.6 million). The most logical step, as was widely discussed, would be for Uber to pawn off this millstone and use the money for its mobility business.
Fresh Ingredients in Zomato’s Kitchen
The benefits for Zomato with this purchase are clear; an expanded delivery network and capacity by onboarding Uber Eats’ large network of delivery partners, estimated to be 65,000 riders, without burning too much cash. An additional benefit is the potential to strengthen its position in terms of the number of restaurants on its platform, especially in South India, where Swiggy holds sway. However, this factor is likely to have only a limited impact, considering that in the 40 odd cities where Uber Eats had a presence, Zomato already has almost 85-90% of restaurants on its network. In other words, it gets to add only 10% of Uber Eats’ unique set of restaurants.
Zomato’s recent funding of ₹1,067crore ($150 million) from ANT Financial would certainly have driven the timing of this acquisition. Meanwhile, Zomato will probably be quick off the blocks in moving Uber Eats customers to its platform by dishing out free subscription offers and restaurant discounts.
Swiggy Continues to Soldier On
Despite this acquisition, Swiggy remains, arguably, the leading market player in the country and continues to expand rapidly. Even if it had acquired Uber Eats earlier last year, it would not have provided a stronger market position similar to what Zomato has gained now in certain geographies in the country. Swiggy’s diversification into a variety of last-mile delivery services, including store, package and home meal deliveries, is expected to offset any potential losses due to Zomato’s acquisition of Uber Eats.
What Happens Now?
Even though Uber Eats is not part of the Indian food delivery market anymore, its 9.99% share of Zomato still gives it a say in the company’s India operations even as it is unlikely that it will invest more cash into the company. Also, let’s not forget Amazon’s ambitions of entering the Indian market with its food delivery service.
It will be interesting to see how intense the rivalry between Swiggy and Zomato will get and how it could affect their position in the market. With new players like Reliance and Amazon likely to enter the market, 2020 could be a ground-breaking year for food delivery in the country.
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