Why Uber Eats acquisition might help Zomato lure investments from SoftBank

Zomato’s US$350 million acquisition of Uber Eats India, which gives Uber a 9.99% stake in the emerged entity, might lend Zomato an upper hand in convincing SoftBank, that has till now not made any bets in food tech in India to take a bite of Zomato’s pie.

An investor who did not wish to be named said that with SoftBank’s two portfolio companies – Uber and Alibaba on Zomato’s cap table own 9.99% and 23% stake, respectively – the Japanese conglomerate might now be inclined to invest in Zomato.

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“SoftBank has been waiting for a market consolidation like this to happen. In the past, it has had multiple discussions with Swiggy, which didn’t materialize as it wants to pick the leader in this space. It doesn’t want to repeat the mistake it made by choosing Snapdeal over Flipkart,” the investor said.

SoftBank, which has gone through a rough year in 2019, is betting on the Indian market as it prepares a local team to scout new investments in the country.

Hari Krishnan, fund manager at Astarc Ventures, said that the Uber Eats acquisition gives Zomato a better story to tell potential investors: the deal works in its favor when it comes to the food-delivery battle in India. “Zomato has been struggling to raise money in the past which is why the same set of investors have put in money this time. The acquisition might help change that,” he said.

Zomato is in the midst of raising US$500 million to US$600 million, of which it has already received US$150 million from Ant Financial, Info Edge, Sequoia Capital, and Singapore government-backed Temasek Holdings.

Krishnan said Swiggy has currently been dominating the food-tech market, but the dynamics would change with this acquisition. In a blog post, Deepinder Goyal, founder of Zomato said, “This acquisition significantly strengthens our position in the category […] we are the undisputed market leaders in the food-delivery category in India.”

The acquisition will surely give Zomato a dominant position in the South Indian market, its weaker den, over its archrival Swiggy.

“South has not been a market where we have been typically very strong. On a per-order basis, we were burning more (cash) in these cities but this will now improve our unit economics. Food delivery is almost 80% of our revenue, so if our business goes up by 20% and I have paid 10% of my stock, it will be a win-win deal for us,” Goyal told local media Economic Times.

Post the acquisition, which dictates Uber Eats to shut down its platform in India and redirect all its customers as well as restaurant partners to Zomato, the Alibaba-backed food-delivery unicorn is expecting to get 80% of Uber Eats’ business. “We will get about 20% new users on a monthly active basis and manage 25% extra orders,” Goyal said.

Zomato will also get access to almost 500 restaurants that were earlier on Uber Eats’ platform from South India.

One of the reasons Swiggy has a stronger base than Zomato in South India is that Swiggy is a Bengaluru-based company and started to expand its operations in the southern part of India first. “After Bengaluru, the next big market for Swiggy was to expand to Hyderabad, from where Swiggy surprisingly gets more orders than it does from Mumbai,” a person in the know who did not wish to be named told KrAsia.

“Similarly for Zomato, since they first had a restaurant discovery business out of Gurugram, they have good relationships with restaurants in North India, which gives them an edge there,” the person said.

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