There are reports that food delivery start-up Swiggy is in talks to acquire Uber Eats and hospitality chain Oyo is in discussions to buy out cloud kitchen company FreshMenu. Mint takes a look at what this means for the ecosystem in India if the talks are successful.
Why would Uber want to sell its India food business to Swiggy?
Uber plans to go public this year. However, the company needs to cut its losses before doing that. The Indian unit of Uber Eats is still a fringe player in the country’s food tech sector, but the US market is a good contributor to the food business that is valued at more than $20 billion. To ensure that its food tech arm doesn’t dilute the parent’s market value, which is pegged at $120 billion, Uber would aim to sell its India food business to Swiggy, the current market leader. This would make Uber’s numbers more attractive as it prepares for its initial public offering.
What does this mean for Swiggy and other stakeholders?
The deal will add 4.6 million monthly orders to Swiggy’s base of 25 million, as per Forrester Research estimates. This will give the firm the firepower to continue leading the food tech market as it competes with Zomato, estimated to have 21 million monthly orders. The acquisition will also give Swiggy access to SoftBank, one of the most prolific tech investors. Through Swiggy-Uber Eats and Oyo-FreshMenu—SoftBank is an investor in Oyo—the Masayoshi Son-led financial giant can get a piece of the Indian food tech sector. Uber can exit a loss-making business and focus on key markets.
What has changed since the 2015-16 consolidation?
Food tech is an important aspect of India’s consumer internet businesses. Food delivery businesses are capital-intensive, but the market has grown and matured since the consolidation.
Why would Oyo want to acquire FreshMenu?
SoftBank-backed Oyo aims to become a full-fledged hospitality chain and food is an important aspect of the ecosystem. Acquiring FreshMenu can help Oyo achieve standardization in the food served at its properties. FreshMenu has been in the market for months to raise money and the talks are being facilitated by their common investor, Lightspeed. Analysts say there could also be a SoftBank angle: the Japanese investor hasn’t been able to invest in the Indian food tech sector and over time valuations have become too steep.
What does all this mean for the food tech sector as a whole?
Urban consumption patterns are evolving as more people order food or eat out. Analysts say food delivery firms will thus continue investing in building capacities, increasing their customer base and the brands. Money may go into the cloud kitchen model, where these firms will create their own brands. Incumbents such as Swiggy and Zomato may focus on expanding into new segments. Swiggy has announced its foray into the hyperlocal business and Zomato has launched events as a category.
Source: Mint