Uber to Own 9.9% of Zomato After Selling Food Delivery Business

The acquisition will give Uber a 9.99 percent stake in the Indian food delivery and restaurant discovery platform.

Zomato is the latest food delivery giant to show interest in buying the company.

(Photo: Altered by The Quint)

Zomato on Tuesday, 21 January, said it has acquired the Indian business of Uber Eats in an all-stock deal that will give Uber 9.99 percent stake in the Indian food delivery and restaurant discovery platform.

Uber Eats in India will discontinue operations and direct restaurants, delivery partners, and users of the Uber Eats apps to the Zomato platform, effective Tuesday, a statement said.

In a regulatory filing to BSE, Info Edge (India) - a shareholder in Zomato - said its shareholding in Zomato will stand reduced to about 22.71 percent on fully converted and diluted basis upon closing of the transaction.

This development was first reported back in December 2019, when talks between Uber Eats and Zomato were claimed to have reached an advanced stage.

The deal comes days after Zomato had raised USD 150 million in funding from existing investor Ant Financial, an Alibaba affiliate, at a USD 3 billion valuation.

"We are proud to have pioneered restaurant discovery and to have created a leading food delivery business across more than 500 cities in India. This acquisition significantly strengthens our position in the category," Zomato CEO Deepinder Goyal said.

Uber Eats, which entered India in 2017, has about 26,000 restaurants listed on its platform from 41 cities. But most people were enticed to use the platform because of its attractive discounts and low delivery charges. However, its restaurant listings didn’t expand as one would have expected, forcing its partners to stop taking delivery orders from the platform.

With this deal, India’s online food delivery market has now become a duopoly, with Zomato and Swiggy taking the lion’s share of the segment.

This is what Uber CEO, Dara Khosrowshahi had to say about the deal announced on Tuesday.

“India remains an exceptionally important market to Uber and we will continue to invest in growing our local rides business, which is already the clear category leader. We have been very impressed by Zomato’s ability to grow rapidly in a capital-efficient manner and we wish them continued success.”

Dara Khosrowshahi, CEO, Uber

It Never Clicked for Uber Eats

Many have pointed out UberEats’ delayed entry into the Indian market has played a big role in lack of demand for the service, where it has been competing with established names like Zomato and Swiggy. Even FoodPanda, after its acquisition by Ola, failed to rack up the numbers, forcing the cab aggregator to shift its business focus elsewhere.

Discussions between Zomato and Uber have been on for months. Facing stiff competition from Zomato and Swiggy, Uber Eats had been making losses.

Uber had projected an operating loss of Rs 2,197 crore in its food delivery business for the five months through December 2019, according to a valuation report prepared by KPMG affiliate BSR and was part of regulatory filings.

According to sources, Uber Eats India business contributed 3 percent of the global gross bookings but accounted for over 25 percent of adjusted EBIDTA losses for the first three quarters of 2019.

But it’s not just India where Uber Eats failed to work its way through the consumers, the ride-hailing giant had to strike similar deals in other countries as well.

Previously, it has exited from the Chinese, Russian and Indonesian market, where it struck deals with Didi, Yandex and Grab respectively. And similar to its deal with Zomato, Uber got share in the main company at Grab and Yandex.

What Happens Now?

With the sale of the food business in India, Uber can now focus on the rides business and driving it towards profitability, one of the persons said.

Uber’s app which was recently overhauled to support both ride and food ordering service, is now asking users to head over to Zomato to make future delivery orders.

This is what Uber Eats users are getting on the app.(Photo: Uber Eats screen grab)

Zomato has confirmed, “the delivery partners who were earlier associated with Uber Eats India will be on-boarded on our fleet. We welcome them and want to assure them we have their best interest in mind.” However, it has less rosy news for those who’ve been working with Uber Eats in the country.

According to sources quoted in the TechCrunch report, Uber Eats employees have been given the option to join the parent company, or else they’ll be asked to leave.

This deal is most likely to give Uber Eats the leadership status in the market, followed by Swiggy.

(With PTI inputs)