Zomato, the online food delivery and restaurant aggregator platform, on Wednesday announced that it has acquired Uber Eats’ business in India in an all-stock deal that will see the ride hailing company’s food delivery business being directed to Zomato starting today.
In a blogpost on Wednesday, Zomato said the deal gives Uber a 9.99% ownership in Zomato. Uber Eats in India will discontinue operations and direct restaurants, delivery partners, and users of the Uber Eats apps to the Zomato platform, effective today.
The move is aimed at cutting losses at the ride hailing company’s food delivery business in India that has been a drag on the company’s earnings.
“This acquisition significantly strengthens our position in the category,” Deepinder Goyal, founder and CEO, Zomato, said in the blogpost. With Uber Eats, Zomato will now collectively have a 55% share of the food delivery market and compete largely with homegrown Swiggy. Zomato delivers to over 550 cities in India.
Delivery partners, who were earlier associated with Uber Eats India, will on-board Zomato’s fleet, Goyal of Zomato said.
Close to 245 Uber Eats employees will be affected by this deal. These employees will not be absorbed by Zomato as part of the transaction. Uber is trying to find ways to absorb them within its business here, said a source close to the development.
The deal had been in the works for months, with widespread speculation over Uber’s decision to completely exit food delivery business in India as a response to mounting pressures on the ride-hailing company to curb losses especially after it went public in 2018. The move, said a source, is in line with Uber’s push to either be a dominant player in markets it operates or to exit the business.
Uber will instead continue to focus on building its ride-hailing business in India where it competes with rival Ola.
“India remains an exceptionally important market to Uber, and we will continue to invest in growing our local Rides business, which is already the clear category leader,” Dara Khosrowshahi, CEO of Uber said in the blog posted on Zomato’s website.
Uber Eats entered the Indian market in 2017 and scaled business to 41 cities with over 65,000 riders who deliver food from 26,000 restaurant partners. But India’s hyper-competitive delivery market, funded by steep discounts and low value orders, has been a drag on the company’s financials.
“Our Uber Eats team in India has achieved an incredible amount over the last two years, and I couldn’t be prouder of their ingenuity and dedication. We have been very impressed by Zomato’s ability to grow rapidly in a capital-efficient manner,” Khosrowshahi said.
Uber Eats as a brand will not exist in India going forward, but the brand will continue operations in neighboring countries of Bangladesh, and Sri Lanka. Uber Eats, as an app, was first piloted in 2014 in Los Angeles. Interestingly, Uber’s entry into food delivery in India in January 2017 came at a time when homegrown food startups, barring a few, were cash starved and were forced to put expansion on hold. A funding crunch since mid-2015 had impacted smaller, fringe players–forcing the likes of Spoonjoy, Dazo, Eatlo and Tinyowl to shut shop.
More recently, Ola decided to scale down expansion of its Foodpanda delivery business that it acquired in 2017.
The deal marks yet another round of consolidation in India’s thriving food delivery business where companies backed by large investors have struggled to find sustainable business models.
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, Zomato’s Goyal said.
This category will continue to grow and get built over the next couple of decades, as all work hand-in-hand with restaurants and food service providers to provide better food for more people, he added.
