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Uber Eats sold its India business to local competitor Zomato for USD 206 million (Update)

Zomato-Uber Eats will collectively have 52% market share in India.

Picture by Avanish Tiwary

In a major consolidation move in India’s food delivery sector, San Francisco-based ride-hailing giant Uber announced Tuesday that it has sold the India operations of Uber Eats to the local competitor Zomato, in an aim to get rid of the loss-making unit.

The deal was made in an all-stock transaction which was in the making for over a year. In return, Uber will have a stake of 9.99% in Zomato, trailing behind Alibaba’s investment arm Ant Financial and online classifieds company Info Edge with 23% and 26.38% stake, respectively, in the food-tech startup.

“This is a key moment in our journey as it validates our collective achievement. With our expansion to 550+ cities over the last year…this acquisition significantly strengthens our position in the category,” Deepinder Goyal, founder of Zomato said in a statement.

Uber Eats will discontinue operations effective immediately and direct restaurants, delivery partners, and users of the Uber Eats apps to the Zomato platform. The Gurugram-based food delivery unicorn will get access to around 10 million monthly orders from Uber Eats. Zomato said it receives over 40 million monthly orders. Now with Uber Eats’ orders, it will have a larger market share in India. “With this development, we are the undisputed market leaders in the food delivery category in India,” Goyal said.

While Uber Eats holds less than 5% market share in India, it has a strong user base in the Southern part of India—Zomato’s weak spot—thus giving a sudden bolt to Zomato’s capacity in this market.

Goyal also believes that the merger would help his company deliver faster. “If at all, the scale gives us a higher density to make our deliveries faster,” he penned in a company post commenting on the acquisition.

Uber in reverse gear

Although Uber Eats entered India in 2017, it failed to make a dent in the market as Zomato and Naspers-backed Swiggy continued to dominate with little to no threat from Uber Eats. India’s food delivery market is expected to touch USD 17.02 billion by 2023, according to a business consultancy firm, Market Research Future.

However, the country’s seemingly lucrative food delivery market has posed some challenges to market players after the National Restaurant Association of India orchestrated a #logout campaign in which thousands of restaurants around the country logged out of the food delivery apps, making it increasingly more difficult for Uber to compete with more established local rivals.

Since 2019 both the market leaders have slowly slashed discounts in their bid to achieve better unit economics as well as in response to the protests from the restaurants, but Uber Eats has to hang on to efforts such as deep discounting and free delivery to acquire users. Last year, in its filings with the ministry of corporate affairs Uber projected a negative revenue of USD 107.5 million for its food delivery business in India.

In addition, NYSE-listed Uber last year has been under pressure from investors to cut down on its loss-making businesses. The company performed poorly after its public listing last year as its valuation fell from USD 120 billion to USD 45 billion within nine months.

This is not the first time Uber has retreated from a regional market in Asia. In face of dim hopes in winning over a local market, Uber over the past years has pulled its ride-hailing or food delivery businesses out of several markets including China, Southeast Asia, South Korea, and Russia.

Last year Uber Eats ceded operations in South Korea, the number four food delivery market globally. “After two years’ partnering with local restaurants to offer convenient, reliable food delivery, we have made the difficult decision to discontinue Uber Eats in South Korea at the end of October 14, 2019,” Uber Eats Korea said in a statement.

In April 2018, it sold its ride-hailing business operational in eight Southeast Asian markets and Uber Eats which was present in three countries across the region, to its competitor Grab. It picked up a 27.5% stake in the Singapore-based giant, then valued at over USD 6 billion.

Intense competition

The fight to grab the larger share of the food delivery market in India is mainly fought between Zomato and Swiggy, which collectively own the market. Last year, Swiggy claimed to have a 60% market share. However, a RedSeer report pegs Swiggy’s market share at 43%, while putting Uber Eats India and Zomato collectively to have a 52% market share. “The competition in this space is going to continue to be intense, and the food delivery category is still very small compared to the overall food service market in India,” Goyal said.

Zomato, started as a restaurant discovery platform in 2010 before jumping into food delivery space and has now expanded into dine-in offerings such as reservation service and a subscription model called Zomato Gold which gives users special discounts at partner restaurants. Although the Zomato Gold model worked well for restaurants as well as users, many restaurant partners resorted to boycotting Zomato last year in August, which led to Zomato making changes in its Gold offering. Goyal believes this category will continue to grow and get built over the next couple of decades.

While the Zomato-Uber Eats deal is a major consolidation in India’s food delivery space, the fight is far from being settled as Seattle-based online retail giant Amazon prepares to launch a food delivery business in India. It has approached restaurants with a commission offering of as low as 6%—a fraction of what Swiggy and Zomato charge their restaurant partners.

To ensure it doesn’t lose the market share, Zomato is in the midst of raising USD 500-600 million, of which it has already received USD 150 million from Ant Financial, Info Edge, Sequoia Capital, and Singapore government-backed Temasek Holdings.

Updated on March 4, 2020: In a recent regulatory filing, Uber said it sold its Indian food delivery business to Zomato for USD 206 million, and, in turn, received a 9.99% stake in the latter. The “estimated fair value of the consideration received is USD 206 million, which includes the investment valued at USD 171 million and the USD 35 million of reimbursement of goods and services tax receivable from Zomato,” the ride-hailing giant said in the filings.

Meanwhile, documents filed by Zomato with the Indian government in early February revealed that the homegrown food delivery giant allotted 76,376 Non-Voting Compulsorily Convertible Cumulative Preference Shares to Uber India Systems, with a face value of USD 122.9 (INR 9,000) at a premium of USD 2338 (INR 171,153), for a total issue price of USD 2461 (INR 1,80,153) per share.

A Zomato spokesperson told local media Economic Times that Uber deal was done at a “lower valuation since it didn’t get any rights that a primary investor would have gotten, for instance, liquidation preference, right to information, etc.” In the regulatory document, Uber added it is not represented on the management team or board of directors of Zomato, and therefore it does not participate in the day-to-day management or the actions taken by the board of directors of Didi and Zomato.