Zomato has completed the acquisition of UberEats and is apparently making headway, but what looks like expansion for Zomato ironically takes away its advantage over Swiggy in the market. Here’s why.
Zomato thinks that acquiring UberEats makes sense. But it may be eyeing a strategic suicide. The transaction is now complete and Zomato’s fate arguably hangs in the balance with UberEasts under its umbrella.
Heads Up! Why Zomato acquiring UberEats is ‘Advantage Swiggy’
- The current advantage that Zomato has over Swiggy
- Why Swiggy and Amazon stayed away from UberEats
- Why Zomato thinks UberEats acquisition makes sense
- Why acquiring UberEats is Hara-Kiri for Zomato
As per a TechCrunch report, as part of $400 million UberEats deal, parent Uber is investing $150-200 million in Zomato. Furthermore, Zomato Founder and CEO Deepinder Goyal is looking to raise another $600 million in a new round of funding in the near future.
Both Swiggy and Amazon decided against acquiring the risky, cash-burning UberEats before Zomato emerged as the frontrunner and took it on board.
In fact, UberEats sale has been in the news for some time now. First, Swiggy was looking to acquire in January, followed by Uber also approaching Amazon in July. But both decided against taking up the risky, cash-burning UberEats. However, Zomato and Goyal have decided to take up the challenge.
Currently, Zomato earns more and Swiggy burns more
India’s food-tech market is steaming ahead with a threefold climb from $5 billion in 2019 to $17.02 billion by 2023, as per Market Research Future. It’s a relay race of huge discounts, free meals, hygiene guarantee and top-notch delivery. The food-tech market ranges from cloud kitchens, aggregators, ingredient suppliers and corporate meal websites. Swiggy and Zomato are firmly on top of the pyramid.
Even with 1.5 lakh more monthly orders, Swiggy at $35 million burns much more cash than Zomato’s $20 million.
As per a recent INC42 report, the five-year-old Swiggy boasts 160,000 restaurant partners and 2.3 lakh delivery fleet across 500 cities. In comparison, the decade-old Zomato has more than 600,000 partner restaurants and also a delivery fleet of around 2.3 Lakh in 500 Indian cities.
So, Zomato saw 1.25 million daily orders in November, while Swiggy had 1.4 million. However, even with 1.5 lakh more monthly orders, at $35 million Swiggy burns much more cash than Zomato’s $20 million. For FY2019, Zomato’s financial losses stood at INR 570.52 Crore. On the other hand, Swiggy’s losses in the same period stood at INR 2345.6 Crore. However, with UberEats acquisition, Zomato stands to give away that advantage.
UberEats Acquisition endows Zomato with new cash burn
UberEats arrived in the Indian market in 2017 but found it tough to make inroads. Competing with the firmly settled Zomato and Swiggy, it went with the huge discounts and free offers strategy. But that came with unprecedented cash burn excess of $14 million a month. Consequently, Zomato stands to inherit this UberEats cash burn and lose the profitability advantage it has over Swiggy.
With UberEats acquisition, Zomato will add $250,000 to $300,000 worth of orders as it braces for Amazon’s reported entry in the food delivery market.
Reports say that the Zomato’s deal to buy UberEats India is valued at $400 million. With that Zomato will add $250,000 to $300,000 worth of orders to its portfolio. And while Zomato believes the acquisition will help it in capacity building and pushing up the market share, the worth of new market and subsequent cash burn involved doesn’t make sense.
There’s a solid reason why first Swiggy and then Amazon pulled back. Investors were left unsatisfied by the price of UberEats. Investors statements said that the amount that UberEats claims doesn’t balance out with its business. But Zomato feels that the acquisition will help it brace for Amazon’s reported entry in the food delivery market.
Buying UberEats is Hara-Kiri for Zomato which nullifies its advantage
Undoubtedly, UberEats has a very strong backend. If it gets hold of a niche it the market, the company can go miles. There is still great opportunity to capture tier-3 and tier-4 markets. While Zomato has a sounder strategy, Swiggy is ferociously expanding. In the last six months, Swiggy added 60,000 new restaurants and will expand to 600 cities by the end of 2019.
Furthermore, Swiggy has on-boarded 15,000 tier-3 and tier-4 market restaurants in the last 6 months. With Zomato acquisition on the horizon, UberEats recently ventured to new markets. Uber Eats’ Head of Operations Bansi Kotecha recently stated, “Right now, we are more focused on delivery with the restaurant partners”. Kotecha also said, “We are learning in the India market and making our mark in that space before we can add anything more to it”.
With the UberEats acquisition, Zomato’s cash burn will rocket from $20 million to $34 million.
Therefore, with the UberEats acquisition, Zomato’s cash burn will rocket from $20 million to $34 million. The $15 million difference in cash burn is the advantage that Zomato has today against the rapidly expanding Swiggy. But the UberEats acquisition inadvertently takes that away from Zomato. Hence, Zomato’s UberEats acquisition is technically ‘advantage Swiggy’.