What Zomato’s acquisition of UberEats means for India’s foodtech ecosystem

On Tuesday morning, Gurugram-based foodtech startup Zomato acquired Uber Eats, the Indian food delivery division of Uber. The San Francisco-based ride-hailing giant decided to sell the entity off to Zomato as the India food business did not contribute significantly to its global business.

This move was one of Uber’s steps towards cutting its losses, but it marked the first big step towards a consolidation for the Indian foodtech market. For despite the fact that the two big players, Zomato and Swiggy, dominate the space, Uber Eats still held a strong 12 percent of the market. 

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The big wins for Zomato 

What does Zomato gain from this deal? Quite a lot actually. The startup gets Uber’s delivery partners and Uber Eat’s business details, including customer information, delivery partners, and order history. The Uber app will redirect users to Zomato for the next six months whenever they choose the option of “get food delivered”, which translates into a part of the market share. 

“The biggest benefit will be gaining the delivery partners. Currently the battle in the foodtech business is about who has more delivery partners, as that ensures greater reach. The consumer today wants food delivered in the quickest possible time, and that means there need to be more people on the street, not just one delivery person doing more than one delivery,” explains an early-stage investor. 

Currently, Zomato has partnered with 1.5 million restaurants across 24 countries and serves more than 70 million users every month. The Gurugram-based unicorn has over a lakh delivery partners. Numbers haven’t been disclosed, but it is believed that the addition of Uber’s fleet will take this figure to close to two lakh delivery partners. This will be a little more than Swiggy's 1.5 lakh delivery partners. 

A growing ecosystem 

Yagnesh Sanghrajka, Chief Financial Officer at 100X VC, says the strength of Uber Eats’ delivery network will help Zomato grow its market share in South India, and hence compete more fiercely with Swiggy nationwide. He views this acquisition as a sign of consolidation.

“This happens typically to achieve leadership after companies achieving sizeable aggregation. Zomato now has more than 50 percent share in the food delivery market with this deal,” Yagnesh says. 

Zomato is aware of how the deal with Uber Eats will help it scale further. Deepinder Goyal, Co-founder and CEO, in a blog post, wrote: “We have acquired Uber Eats India and with this development, we are the undisputed market leaders in the food delivery category in India.” 

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The focus on sustainability 

The acquisition signals a positive shift in the market. 

According to Rohan Agarwal, Director, RedSeer Consulting, the online food delivery market has been growing at close to 150 percent year on year and a consolidation will make it "healthier". 

“When the competition density is higher, it becomes difficult to work on a path of sustainability. Now with two main players in the space, there can be a deep focus towards rationalisation, which the top two players in the market have already started looking at,” Rohan says. 

In the past year, between the two heavyweights, Zomato and Swiggy, the average order volume was close to 40-50 million orders a month. At an average of close to 500,000 orders a day, it is safe to say that foodtech companies are changing the way India eats. 

Swiggy even launched Daily, its subscription-based homestyle meal service, which meant bringing the Average Order Value (AOV) down. 

While work on this started in 2017, volumes began increasing at the end of 2018 and significantly through 2019. In 2017, the AOV was Rs 400; in 2018, it was Rs 300; and in 2019, it touched Rs 250 - showing a 25 percent dip. However, the quantum of volume increased. 

“Startups addressing one major pain point, and focusing on it full time to scale and achieve a certain level of critical mass becomes an important milestone. It can turn into a unique selling proposition for a larger player to strike a deal with them to increase market share, and create value and future exit opportunities for investors,” Yagnesh says. 

Making inroads into Bharat

Now that the two biggies will lock horns, will they penetrate into Bharat?

Despite the growth and a presence in smaller cities, currently 65 percent of Zomato and Swiggy’s business comes from the top tier cities. 

However, the companies believe that things are changing. 

Mohit Gupta, CEO, Food Delivery, Zomato, earlier told YourStory, “While growth in the top 15 cities has tripled in the last 12 months, our emerging cities now contribute 40 percent to our business. We are excited to change the paradigm of food as we continue to let every bit of India get a taste of Zomato.”

Rohan added that the shift towards smaller markets is recent and it would take time for habits to form and behaviours to change. 

So while this consolidation pushes Zomato a notch higher, it will be interesting to see what the foodtech unicorn does with the base in smaller towns, and if it can actually convert all of Uber Eats’ consumers to Zomato consumers. 

(Edited by Teja Lele Desai)

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