Zomato-Uber Eats deal sets up a duopoly

The deal has helped Zomato acquire new customers from Uber Eats and foray into the southern states where Swiggy has been the dominant player.
Zomato (L) has bought UberEats India (R). (File photo| PTI and EPS)
Zomato (L) has bought UberEats India (R). (File photo| PTI and EPS)

Online food delivery space in India is bracing up for a duopoly involving Swiggy and Zomato. The homegrown brands are vying for a larger slice of the industry pie, the size of which is set to touch $12.5 billion by 2023.

According to market analysts, the recent $300 million Zomato-Uber Eats deal is a winwin situation for the company as well as the Indian food tech space, which will see further consolidation on the lines of the e-commerce space.

The deal has helped Zomato acquire new customers from Uber Eats and foray into the southern states where Swiggy has been the dominant player. For ride-hailing platform Uber, which has been closing down its loss-making units globally, shutting down Uber Eats in India will save the global firm about $240 million every year.

Both Swiggy and Zomato, as per the analysts, may stop offering deep discounts for some time now and work towards profitability instead of gaining market access, which has been their focus since inception. Amazon’s reported foray into the food delivery industry is also keenly watched out for.

Swiggy-Zomato war intense  

When it comes to online food delivery, Uber Eats always had a tough time to match up to Swiggy and Zomato both in terms of number and value of the orders. As per market research firm Redseer Consulting, while Swiggy and Zomato clocked 1.4 million and 1.2 million orders everyday in December, Uber Eats could only manage 4,00,000 such deliveries. In terms of order size, the average value of each delivery on Uber Eats stood at Rs 150, almost half the value on other platforms.

Apart from Uber Eats, Food Panda India, another microplayer who was acquired by Ola in 2018, shelved its food delivery businesses in 2019, and has decided to continue its cloud kitchen model under Ola Foods. With the elimination of micro players, the war between Swiggy and Zomato will become more intense.

“The gap between Zomato and Swiggy will certainly narrow down with this deal. Overall, it sends a positive signal for the industry... With so many changes happening in the food tech space in the country since 2013, especially in infusion of big funds, consolidation is always a welcome step,” said Sandeep Mitra, co-founder and CEO of corporate food solutions start-up HungerBox.

Profitability over cash burn

As has been the trend worldwide, a majority of start-ups, especially the ones backed by big fund agencies, have burned cash heavily for the first few years to attract customers, expand to newer markets and gain market control. Swiggy, which is claimed to have 60 per cent market share, reported a sixfold increase in losses at Rs 2,345 crore in FY19. For Zomato, the losses grew nearly 10 times from Rs 106 crore in FY18 to Rs 1,000 crore in FY19.

“Consolidation has and will become a more relevant strategy, as structurally challenged operations will be shed and market- level economics will become the focus... Until there is a right balance between Swiggy and Zomato, where a more rational approach towards scale and profitability is achieved, one can continue to expect increased competitiveness manifest in deep discounts, aggressive customer acquisition tactics, and future consolidation,” said Nikhil Bahadur, partner and head of private equity (mergers & acquisitions), Kearney.

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