Why a potential merger could be a win-win for both Zomato and Grofers

Though the companies are distancing themselves from the news of a potential merger, a takeover deal between Grofers and Zomato, if done right, is expected to lead to further consolidation in the food and grocery delivery segment in India. The move will give Zomato, who ventured into online grocery delivery last month with Zomato Market, further muscle to take on Swiggy and BigBasket in the segment. 

The news of the companies in early stage discussions comes at a time when there have been supply chain and distribution challenges for the players. Many are extending partnerships that may carry on further and beyond the lockdown period. The news also comes at a time when the players have not been able to generate revenues and are burning much more cash due to the lockdown effect. Media reports say that Grofers might be valued at around $750 million and Japanese venture capital fund, SoftBank Vision Fund, may invest around $100-200 million in the merged entity. 

When contacted by THE WEEK, the Grofers spokesperson stated that the news on the merger and the possible takeover by Zomato is pure speculation and completely untrue. “We are the country’s biggest online grocery retailer and have been growing at 2x times every six months,” the Grofers spokesperson remarked. Zomato also denied any takeover moves. “We have partnered with Grofers, along with 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’s spokesperson told THE WEEK.

However, market experts feel that a merger would be a win-win situation for both Zomato as well as Grofers in the current market situation. With India going through a 21-day lockdown, which has been further extended till May 3 on Tuesday, the revenue of different internet delivery players have been hit hard. These companies are facing execution challenges due to supply chain disruptions. “Through this possible takeover, Zomato will be able to leverage the customer base of Grofers and Grofers, on the other hand, will be able to leverage the large ecosystem of Zomato. Swiggy has already entered the grocery segment and is delivering groceries across cities in India. With this takeover, Zomato will be able to take on Swiggy in a big way,” Rohan Agarwal, director at RedSeer, told THE WEEK. 

He further said that currently, many big players are coming together to forge partnerships with each other and are leveraging each other’s capacity. For instance, Uber has partnered with Flipkart and BigBasket to deliver essential supplies to different customers across different cities in India. All this has happened due to the COVID-19 pandemic. “These partnerships can further continue even after the lockdown as they will leverage each other’s capacities and distribution network,” said Agarwal.

The speculations around Grofers-Zomato merger portends the unfolding regime shift in the Indian e-commerce industry, feels Alok Shende of Mumbai-based Ascentius Consulting. “The regime shift is characterised by the kink in the consumer behaviour owing to COVID-19. Rather than bet on consumer discretionary spending on take-away food, the acquisition of Grofers will allow Zomato to be in the safe business of groceries. Eventually, when India returns to normalcy, the food business is likely to take off again. It is the intermediate period that poses risk and Zomato is mitigating the risk if they are acquiring Grofers. That they are backed by the same venture capitalist (Sequoia Capital), certainly helps their cause,” remarked Shende.

Leave a Reply

Your email address will not be published. Required fields are marked *