With this approval, Zomato is poised to re-enter the grocery delivery market, which experts say could increase competition even if rival Swiggy continues to expand its grocery service.
The Competition Commission of India on August 13th authorized Zomatos acquires approx. 9.3% of the shares in Grofers India and Hands on Trades. While the former is engaged in online grocery delivery in over 35 cities across India, the latter is engaged in business-to-business grocery wholesale and contract manufacturing.
The two largest grocery delivery platforms in India, Zomato and Swiggy, are also making rapid strides in the grocery delivery segment. This latest investment from Zomato, which recently made a blockbuster debut in the public market, will help the platform better compete with Swiggy’s Instamart, which has already made profits in many cities.
“The financing should not only give Grofers the urgently needed support to fight the ever increasing competition, but could also be the beginning of the partnership between Zomato and Grofers, which could lead to a strategic partnership”, Rishi Anand, Partner, DSK Legal announced MediaNama.
Zomatos re-entry into grocery delivery
Zomato first showed interest in the grocery delivery market in April 2020 when it entered that area via Zomato Market, but the company left the area in June of that year.
However, in its Red Hering prospectus, filed at the time of its IPO in July 2021, Zomato said it was in the process of launching a pilot-based grocery delivery market on its platform, suggesting that the Zomato market may be revitalized. “We’re coming back to experiment and see how we build this hyper-local part of the business,” said Gaurav Gupta, co-founder of Zomato, at a July 8 press conference. Grocery delivery service began in select areas and for selected users in Delhi last month.
“Zomato’s re-entry into the online grocery market will destroy the competition in an area that is already highly competitive,” Pratyush Miglani, managing partner of Miglani Varma & Co told MediaNama. “As Reliance launches JioMart, Tata acquires a majority stake in BigBasket, Swiggy invests in Instamart, and companies like Amazon and Flipkart enter the market, Zomato will seek to counter those market leaders,” added Miglani.
Zomato does not want to use synergies immediately
When Business hours asked Zomato co-founder and CEO Deepinder Goyal how the investment in Grofers relates to the company’s plans in the food sector for the long term. But it’s a big room and we’re trying. “
“The investment in Grofers is separate and we have our own food supply (Zomato Market), which is a marketplace model and is sourced from local shops. This is not due to the investment made by Grofers. For the time being, we are not drawing any synergies from Grofers. Nothing is planned at the moment, there is still a long way to go, ”added Goyal.
When asked what prompted Zomato to invest $ 100 million in Grofers, Goyal said, “It was the last independent food company left. So we wanted to invest money there and see if we can do something in the future. We have no rights or anything like that, so the investment is purely financial. “
Grofers joins the unicorn club
Accordingly Financial Express, Zomato has invested approximately Rs 518 crores ($ 70 million) in Grofers and Rs 223 crores ($ 30 million) in Hands on Trade, accounting for 9.16% and 8.94% respectively.
Zomato’s investment values Grofers at over $ 1 billion, making it the youngest participant in India’s unicorn club to have seen 25 new entries so far this year.
“Given how tempting the e-food market has become for investors, it’s also very likely that Zomato will try to take over Grofers India at some point,” said Miglani.
Swiggy doubles food
Last month, Swiggy completed its $ 1.25 billion investment round led by SoftBank Vision Fund 2 and its existing funder Prosus. “Our biggest investments are in our non-food businesses, which have seen tremendous consumer love and growth in a short period of time, especially in the last 15 months of the pandemic,” said Sriharsha Majety, CEO of Swiggy, after the round.
Swiggy “has the power to enable multiple companies to reach new age consumers on a daily basis, and grocery delivery is just the beginning,” added Sumer Juneja, SoftBank Investment Advisers.
Earlier this month, Swiggy expanded Instamart’s grocery service in five other cities: Delhi, Mumbai, Hyderabad, Chennai and Noida. Previously the service was only available in Bangalore and Gurugram. In addition, Swiggy promised delivery times of 15-30 minutes in these cities. Grofers is also testing its 15-minute delivery service in selected cities.
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