At a time when Amazon and Uber are bracing up to seize India’s emerging food-tech market opportunity, expected to be worth USD 4 billion by 2020, the talks about the merger of the top two players—Swiggy and Zomato—have resurfaced after two years.
A recent report by local news website Firstpost citing sources, said the key investors in Swiggy and Zomato have held discussions for a possible merger between the two in recent weeks, although the talks are still at a very early stage.
Zomato has denied saying no such discussion took place, while Swiggy hasn’t made its stance clear, local media Mint reported.
“A potential merger is clearly a proposal that interests everyone,” the Firstpost report quoted a person directly connected with the discussions. “There are no timelines yet.”
While Swiggy is backed by Tencent, Naspers, and Accel, Zomato counts Infoedge, Alibaba’s investment arm Ant Financial, and Sequoia Capital as its investors. Together, the two food tech giants hold a combined market share of 70%.
These high-profile investors are betting on India’s remarkably huge young and working-class consumer base to drive up the volumes further. In 2018, there were 15 million customers who ordered food online in the country and the total annual orders stood at 640 million with the gross merchandise value of USD 2 billion, as per global research and advisory firm Praxis Global Alliance.
With rising demand, the Indian online food ordering market is expected to touch USD 17.02 billion in value by 2023, a recent report by business consultancy firm Market Research Future said.
Amazon and Uber are well aware of India’s growing appetite for online food ordering apps and are going to increase their presence in food delivery space, creating troubles for existing players.
Uber, which was allegedly looking to sell its Uber Eats India business to cut down on losses earlier this year, has taken a U-turn and is now gearing forward to crack India’s food-delivery market. Just last week, it said it is “aggressively looking at expanding presence in the country.”
Despite the fact that Uber Eats India dragged down its global net revenue by 0.4%, its head of operations for India and South Asia, Bansi Kotecha told local media that “India is fundamental to Uber’s growth.”
“We have a stable and massive rides business and we don’t see a reason why we can’t capitalize that business and grow Eats exponentially, which we have done over the last one year and we continue to do in this and next year as well,” he said.
Currently, Amazon India lists large hotel chains and cloud kitchens who have their own delivery fleet such as Domino’s, Pizza Hut, McDonald’s, Eat.Fit, among a few others on its main app. However, it plans to launch a separate food ordering app over the next few months which is likely to give restaurants some relief from the high commission charged by the incumbent players. According to reports, Amazon is going to ask restaurants for a commission as low as 6 to 7% compared to 18 to 25% that Swiggy and Zomato charge for their services.
With Uber Eats and Amazon clawing further in India’s food tech space, Swiggy and Zomato that have been planning on a model with a better unit economics, they might just have to continue the discounting game and even lower the commission charged to the restaurants to ensure their leadership. As such, Zomato and Swiggy were understood to burning about USD 30 million every month till six months ago, the Firstpost report said.
Both companies are already reeling under heavy losses and the increasing competition will make them bleed even more. All this makes the talks of the merger plausible.
