To catch everyone up, on Tuesday, Jan 21st Uber announced & Zomato confirmed that UberEats India would be purchased in an $350M all stock deal for 9.99% of Zomato. There’s been a ton of press coverage by tech and business publications in the US & India, but both sides detail half the story, leaving out why the juice is worth the squeeze for each side & miss the larger trends in the global venture landscape.
Why Zomato Bought
First, before acknowledging Zomato’s much deserved victory lap, as the clear market leader in India’s food delivery space, it’s good to understand where they stood. Zomato, founded in 2008, is a food-delivery powerhouse in India with over 5000+ employees, operating in 24 countries including the US after acquiring Urbanspoon (I used to love that app). On the funding side, they’ve raised just shy of a billion dollars from firms like Sequoia India, Temasek and Ant Financial with their latest funding round of $150M closed earlier this month. They are number 1 or 2 in the food delivery market in India by either app installs or gross order volume, along with Swiggy, their major competitor, represented 80–90% of all food app orders.
Ride-sharing compaines like Uber and Ola (India’s local player) consitently disrupted Zomato’s battle for supremacy with Swiggy in India’s food delivery market with UberEats & Ola’s Foodpanda, respectively nipping at Zomato’s heels since 2017. Each of the well capitalized ride-sharing companies entered the food delivery business by leveraging their drivers and providing unsustainable deeply discounted orders. In each case, they temporarily ate into Zomato’s order volume rather than Swiggy’s, first Foodpanda in 2018 then UberEats in 2019. Luckily for Zomato, Uber went public in 2019 and public market investors are not buying their money loosing growth strategy like VC & Softbank were able to stomach (Uber is down 11% since IPO, even Goldman & Travis sold their shares) . Zomato’s ability to weather the storm of the ride-sharing giants demonstrates the company’s resilience and the ability of local operators to raise capital outside of Silicon Valley, compete and win. Many of India’s local players, including Swiggy, had the opportunity to consider purchasing UberEats as well, so kudos to the Zomato team for seeing the strategic value & getting the deal done!
Why Uber Sold
The battle between Zomato & Swiggy to create a duopoly in the food delivery space replicates India’s ride-sharing markets battle between Uber & Ola. Uber is no stranger to ride-sharing battles in global markets and has had varying degrees of success, having retreated by either selling those units to local operators, closing the local unit entirely, or purchasing competitors outright, primarily through stock based transactions like this Zomato deal. However, I’m sure Uber would’ve loved for this transaction to be the other way around, with UberEats gobbling up the local competitor — yet by 2017 when they entered the market India was already packed with mature food delivery startups.
Moreover, UberEats entrance into India’s food delivery space came at an unsustainable price of the Uber ride-sharing business, diverting both drivers and money to subsidize order growth. This sparked a local backlash, prompting local regulators to threaten capping Uber’s surge pricing and also plunging the ride-sharing business into deeper losses. Uber’s CEO, Dara Khosrowshahi, strategy has been to divest from markets where Uber isn’t #1 or 2. Considering that UberEats is a distant third in the Indian food delivery market with 250,000–300,000 orders a day in the country, as compared to 2–2.5 million by Swiggy and Zomato, the additional pressure after Uber’s IPO to cut money losing units only accelerated the matter. UberEats 10% order volume paired with Zomato’s latest funding round valuing Zomato at a reported $3B cemented the valuation for both parties to agree on a fair deal. Offloading UberEats is really just another step in the ride-sharing battle between Uber & Ola, Uber’s hoping it’s decision frees up cash to out maneuver Ola, while Ola drowns in driver shortages & subsidies for their FoodPanda unit. In the long run, perhaps this enables Uber to remain viable in India through ride-sharing and fiscally responsible globally in the short term, while keeping a foothold in the adjacent food delivery market.
The Global Game
Uber & Zomato are both playing a global game and market consolidation is the name of the day, but the players are different. Previously, US backed startups like Uber, had both financial & human capital to outlast and outflank any local players in initial and adjacent markets. UberEats relatively slow global rollout to key markets like India & savvy operators like Zomato’s ability to raise oodles of capital beyond Silicon Valley speaks to the landscape shifting under everyone’s feet. The pace of global innovation today, means founders that feel they’ve got a tiger by its tail must build into their company’s DNA the ability to recruit and rollout innovations for global markets as fast as they do in their home market. Zomato acquiring UberEats just reinforces the growing narrative that global markets aren’t just ripe for the taking, they are filled with operators that will eat your lunch.