Online food ordering and restaurant discovery company Zomato is in talks with grocery startup Grofers for a possible acquisition that might alter the dynamics of the already hyper-competitive and low-margin online grocery delivery segment in India, multiple sources told Financial Express Online. “The talks have been going on since last two months to either buy Grofers or only deepen the partnership around groceries,” said one source. With Zomato Market, the company had recently forayed into grocery deliveries and has been reportedly in talks with Grofers and BigBasket to sell groceries and delivery to customers in what is seen as a move to make the best out of the current Coronavirus pandemic that has hurt online food deliveries amid shrinking strength of delivery personnel and restaurants shutting down temporarily.
“The deal is currently at the exploratory stage and may not close as well. The amount involved is also not certain,” said another source. While on one hand most of the industries are seeing shutdowns and near collapse after the Covid-19 outbreak and the following lockdown, a handful of sectors such as groceries have seen a surge in demand as customers have rushed to stock up groceries until the situation improves. Grofers, BigBasket, Amazon Pantry, Flipkart’s Supermart etc. have seen a huge uptake in orders for groceries and other essential items amid lockdown. If the deal goes through, Zomato would become another fierce player in the grocery segment, which is currently led by these players, even as others such as Swiggy, Dunzo etc. have been engaged in the grocery play from quite some time.
“We have partnered with Grofers, along with various FMCG companies, local groceries stores and modern retail chains, to pilot our grocery delivery service. We are not aware of any other conversation with Grofers,” A Zomato Spokesperson told Financial Express Online in an email statement.
Importantly, SoftBank is the common investor in Grofers and Uber while BigBasket and Zomato are backed by Alibaba and hence it might require Zomato to convince Alibaba for the supposed buyout. “Current crisis has opened up the market as a whole. If you have last-mile logistics capability then you can use it to bring more products using that pipeline. For an investor having a stake in both Zomato and Grofers, he would see it as a consolidation opportunity to have more products ride on existing infrastructure and take cost out of the duplicated infrastructure, channel or delivery pipeline,” an industry expert told Financial Express Online.
While a Softbank spokeswoman told Financial Express Online that they don’t comment on speculation, responses from Grofers, and Tiger Global will be updated in this story as and when received.
“Typically large investors like SoftBank and Tiger Global have very strong clauses, which are warrants, they can call upon when required. This gives them priority to have a far stronger say when decision making comes. Their objective is to not let their positions get eroded because of scenarios where the industry goes through a downturn and some crisis like the current one and hence look for consolidation in their portfolios,” the industry expert added. The deal, if consummate, would mark another big consolidation in the food and grocery segment following Zomato’s recent acquisition of Uber’s food delivery business Uber Eats in the country to further take on arch-rival Swiggy. The two segments have seen multiple startups shutting down operations in the past five-six years such as ZopNow, Peppertap, Eat Fresh, TinyOwl and more.
This story was later updated with comments from Zomato.