Zomato to acquire Blinkit and change the future of food delivery: Know how

Online food delivery platform Zomato, which saw its stock tumbling below its IPO price as India reopened and retail food industry came back on track, had acquired quick-commerce grocery delivery platform Blinkit for a whopping Rs 4,447 crore (about $568 million). Will this acquisition change its future prospects?

Zomato already owned more than 9 per cent stake in Blinkit (earlier Grofers). While the earlier Blinkit deal was valued around $700 million, the drop in Zomato's share price reduced it to $568 million.

Zomato's stock is hovering around Rs 70, after sliding to nearly Rs 50 (it opened at Rs 76 during its mega IPO last year).

According to market experts, Zomato is facing severe cash flow problems as its operational cost is running quite high.

Zomato Founder and CEO Deepinder Goyal said on Friday that he is not getting into the quick commerce market because growth in food delivery is now saturating.

"Food delivery has a long runway ahead. In FY22, our Adjusted Revenue grew by 109 per cent over FY21 and we expect healthy growth to continue going forward," he noted.

According to him, quick commerce is a natural extension of Zomato's food delivery business.

"How is it a natural extension? Because it is also a hyperlocal business, just like food delivery. And, because it also caters to a need for quick delivery of products for our customers. Quick commerce will help us increase the customer wallet share spent on our platform and also drive higher frequency and engagement from our customers," he said in a company statement.

Zomato has grown at a CAGR of 86 per cent in the last four years to an adjusted revenue of $710 million "while the adjusted EBITDA margin has improved from (153 per cent) in FY19 to (18 per cent) in FY22".

The acquisition came as the quick commerce (10-minute delivery) segment is brewing with new hope as people prefer groceries and other home essentials at their doorsteps within no time after making an online order.

Startups like Swiggy Instamart, Zepto and Reliance-backed Dunzo, among others, are trying to defy the current slowdown, as they add more goods and daily essentials to their kitty and deliver them to their customers.

In December 2021, Swiggy announced to pour $700 million into Instamart.

Last month, 10-minute delivery platform Zepto raised $200 million, taking its valuation to around $900 million.

India's quick commerce market is all set to witness 15 times growth by 2025, reaching a market size of nearly $5.5 billion, according to Bengaluru-based market research firm RedSeer.

The total addressable market for quick commerce in India stands at $45 billion, and urban areas are driving this market on the back of mid-high-income households.

According to Akshant Goyal, Chief Financial Officer, Zomato, their food business is trending towards profitability faster than what they had. Athought at the time of the IPO last year.

"The timeframe for overall Zomato profitability does not change in our minds. In fact, we believe we will now get to profitability within the same timelines (as we thought last year) but with a much larger addressable market. We are also not envisaging any further. Acapital raise to get to profitability in this timeframe," he said.

Goyal said that as a food company, "we are already tapping into the large food delivery opportunity in India".

"Customers (and data) are clearly signalling the macro trend that people are moving to unplanned and spontaneous purchases. To add to this, monthly order frequency on Blinkit app was 3.5x in May 2022, which is higher than that of food delivery on Zomato," informed Goyal.

Blinkit's gross order value (GOV) is fast catching up with Zomato's GOV in some key markets, therefore indicating that quick commerce will add a significant new addressable market to our business in the long term.

"In a sample market like Gurugram, Blinkit GOV is already 63 per cent of Zomato's food delivery GOV," Goyal added.

Quick commerce naturally extends across multiple categories including beauty and personal care, electronics, OTC pharma, stationery and other gift items, among others.

The company said it will keep the Blinkit app and brand separate from Zomato.

"We will explore ways in which Blinkit can benefit from Zomato's large customer base (and vice versa in the long term). Post the deal closure, we are going to start experimenting with various ideas that we have and see which all bear fruit, including having the Blinkit tab on the Zomato app," the company said.