Why did Uber Eats actually sell to one of their rivals?
For starters, The Indian online ordering industry is a really big market being valued at around $4.6 billion. If you would rightly recollect, over the years the online food ordering space was dominated by four players Swiggy, Zomato, Uber Eats, and Food Panda. But Food panda went out of business last year and Uber Eats have decided to cut their losses by ending their operations in India and have sold their loss-making business to Zomato!
But why would Uber Eats sell to their rivals? Is it even logical to do so?
Let's go a few years back, when uber eats launched their food delivery services in India they were already late to join the party with rivals Swiggy and Zomato already capturing a handsome of the large Indian market.
In order to capture market share and retain customers, all the food ordering portals offered massive discounts in a strategy that’s called deep discounting to try and retain customers and build brand loyalty. Well, it backfired with customers simply switching to the one that offered the maximum discounts on orders.
However, Backed by investors Swiggy and Zomato continued to offer higher value of discounts per order and Uber eats simply couldn’t cope up with their rivals.
When it comes to the Indian food delivery market, UberEats is a distant third in comparison to its rivals Zomato and Swiggy that clock around 2–2.5 million orders every day. On the other hand, UberEats only clocks 2,50,000–3,00,000 orders per day. As for the value of the order, on average UberEats witnesses $2 per order as compared to $3–4 per order for Swiggy and Zomato. Uber eats had about 26,000 restaurant partners and garnered about 12% of the market
The real factor behind the deal is that uber couldn’t simply pump money into a loss-making business and felt that the returns are far off. Uber Eats made a loss of $61 million for the three months to Sept. 30 on revenue of $20 million. This has made uber to end operations in India.
Both their competitors Swiggy and Zomato are also yet to be profitable and are still burning investor money hoping to plug losses and turn profitable in the near future. Zomato reported a loss of $294 million for the year to March 2019, while Swiggy made a loss of $330 million.
How will Zomato profit from the acquisition?
Zomato is valued at around USD 3 billion with this deal and puts Zomato ahead of rivals Swiggy in terms of valuation. Swiggy has a very good user base in south India and Zomato have been trying to tap into the south Indian market, with uber eats also having south India as their stronghold, Zomato will be able to compete directly with Swiggy for orders post the merger.
How isn’t this a bad deal for Uber Eats after all?
Uber gets close to a 10% stake in Zomato which isn’t bad after all considering the losses that they were making during their operational period. If Zomato becomes profitable in the coming months uber could still take out money through this deal as they now have a 10% stake.
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