Zomato and UberEats are cooking a new merger deal

After China, Southeast Asia, and South Korea, Uber’s food delivery arm UberEats, might be calling quits in India as well, considered to be one of its biggest potential markets.

The Silicon Valley-headquartered company is in the final stages of discussion to sell UberEats to local rival Zomato in a bid to cut losses, TechCrunch reported, citing sources.

The deal, which values UberEats at US$400 million, is likely to involve Uber investing US$150 million to US$200 million in the new combined entity, as well as holding a significant stake in Zomato. This development comes at a time as the homegrown foodtech unicorn eyes US$600 million in the next round of funding in January 2020.

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“Zomato will go ahead with the acquisition only if Uber invests in the joint entity. They want Uber to have skin in the game, else it won’t make sense for the Indian company,” local media Economic Times reported, quoting two sources. Uber’s capital commitment can range between US$100 million to US$200 million, but this may be along with a few other investment fund.”

If the deal materializes, the combined Zomato-UberEats entity will undeniably emerge as India’s largest food ordering and delivery company, leaving rival Swiggy behind, which currently holds larger market share.

Since the beginning of 2019, the ride-hailing company, which brought UberEats to India in mid-2017, has been in talks for a possible buyout with Swiggy, Zomato, and ecommerce behemoth Amazon India, which recently entered the food delivery space.

However, in October, Uber denied giving up on India’s soon-to-be US$4 billion food delivery market after its multiple attempts to sell off UberEats failed. In November this year, UberEats said its India business dragged down UberEats’ global net revenue by 0.4%. As a result, the American firm had projected a negative revenue of US$107.5 million for its UberEats India business between August and December in 2019.

Uber India’s chief product officer, Manik Gupta, said in an interview that the company would not be folding UberEats operations in the country, adding that UberEats has been “growing substantially.”

Barely after 10 days, of Bansi Kotecha, Uber Eats head of operations in India and South Asia, reiterating the confidence Gupta had shown in UberEats for India, local media Times of India reported it is talking to Zomato for a potential merger. At about the same time, rumors of a merger between Zomato and Swiggy also surfaced, which both the companies denied completely.

With a new deal cooking between Zomato and UberEats, the Gurgaon-based food delivery giant will be able to expand its business across the country, leveraging the latter’s reach.

According to industry estimates, UberEats is present across 44 cities and receives 400,000 to 600,000 orders per day, only a third of what Zomato and Swiggy do. While Zomato claims to cater to 1.25 million to 1.3 million orders per day, Swiggy handles 1.4 million to 1.5 million orders a day.

All the three players – Swiggy, Zomato, and UberEats – have been splurging money in discounts and promotional offers to woo customers. As per the sources cited by the Economic Times, UberEats loses anywhere between US$0.7 to US$1.1 (50 to 80 rupees) per order; for Swiggy and Zomato, this figure stands at about US$0.1 to US$0.4 (10 to 30 rupees).

Little surprise then, the foodtech companies are reeling under heavy losses. Swiggy saw its losses spike six times to US$333.1 million in the financial year ended March 2019, over a year-ago period, while operating revenues went up 2.5x to US$159 million in the same time period. Meanwhile, Zomato’s losses went up by 9.4x to US$139.4 million in the last fiscal, as operating revenues rose 188% to US$194.8 million.