Online cab aggregator Ola on Tuesday announced the acquisition of food delivery start-up Foodpanda India from its German parent, Delivery Hero, in an all-stock deal.
Online cab aggregator Ola on Tuesday announced the acquisition of food delivery start-up Foodpanda India from its German parent, Delivery Hero, in an all-stock deal. As part of the deal, Ola will also invest $200 million in Foodpanda India’s operations. The move signifies Ola’s interest in the lucrative online food ordering market in India that is expected to grow at a compound annual growth rate of about 60% over the next five years and hit a gross merchandise value (GMV) of $2.5-3.5 billion by 2021. According to a RedSeer Consulting report, the online food ordering business saw a GMV of $300 million in 2016. Ola co-founder and CEO Bhavish Aggarwal said, “Our commitment to invest $200 million in Foodpanda India will help the business be focused on growth by creating value for customers and partners. With Delivery Hero’s global leadership and Ola’s platform capabilities with unique local insights, this partnership is born out of strength.”
Ola’s fierce rival, Uber, launched its food delivery operations called UberEATS eight months ago in India with a presence in six cities. The deal with Foodpanda clears the road for Ola’s expansion into this segment that is currently dominated by Swiggy and Zomato, apart from other smaller players such as Freshmenu, Petoo, Twigly, Holachef, etc. Following this acquisition, Saurabh Kochhar, who was the CEO of Foodpanda India until recently, will be leaving the organisation, and Pranay Jivrajka, founding partner at Ola, has been named interim CEO of this business unit. Fresh from the funding of $1.2 billion led by SoftBank, the investment by Ola into Foodpanda is one of the largest funds infusion in a food delivery company. Swiggy has raised $155 million so far.
Delivery Hero CEO and co-founder Niklas Ostberg said, “The partnership with Ola will allow us to further consolidate markets where it strategically makes sense to collaborate with leading local players. At the same time, we consider our stake in Ola as a very valuable asset, while Ola’s investment commitment in Foodpanda India is a clear and confident signal to the Indian market.” The expansion into the online food delivery business through an inorganic route has come three years after Ola tested its Ola Café in 2014 but shut it down shortly afterwards. While the segment is emerging and is considered lucrative for players and investors, major players are still in the red and have not reached break-even point.
Foodpanda India recently reported a net loss of Rs 44.81 crore for 2016-17, down from the net loss of Rs 142.64 crore it incurred in 2015-16. The company also reported a 64% rise in its revenues to Rs 62.16 crore in 2016-17 against Rs 37.81 crore in the previous fiscal. While the size and potential of the food delivery market in India seems attractive, widespread challenges and lack of experience had forced some players like Tiny Owl to shut down and some like Foodpanda to downsize. Besides facing competition from their peers, they also have to fight bigger and deep-pocketed food chains like Pizza Hut and Domino’s, which have their own robust delivery services.