Online food ordering and delivery platform Zomato is plotting a potential acquisition of Grofers, India’s second-largest grocery delivery startup, one person familiar with the matter said on condition of anonymity.
The talks are, however, at a very early stage and may not materialize into a deal, the person said. “We have already seen the Zomato and Grofers partnership play out, and acquisition talks have been on after the partnership."
The discussions between Zomato and Grofers were earlier reported by tech news site Entrackr.
Both Zomato and Grofers have, however, denied the talks for a potential merger.
The proposed deal could be pushed by investors of the two companies. Sequoia Capital is a shareholder in both Zomato and Grofers, while Grofers’s largest investor, Japan’s SoftBank, hasn’t yet directly invested in food delivery and could see this deal as its entry into the space.
However, Grofers may be reluctant to sell at this point, given the firm has seen a surge in demand because of the coronavirus outbreak. With social distancing norms likely to be followed at least in the near future, analysts expect grocery delivery startups to continue to prosper.
“Currently, online grocery deliveries is a hot space," said Santosh N., managing partner at D And P India Advisory LLP, and external adviser at Duff and Phelps. “(Though) this is just a temporary phase and things will return to normal, even if a small percentage of grocery deliveries moves online due to convenience, it will result in a considerable number of users. So, there will be some interest from well-funded startups or larger investors to have an investment in this segment."
Acquiring Grofers will allow Zomato to get a deeper foothold in the domestic grocery delivery market. Swiggy, Zomato’s biggest food delivery rival, is already consolidating its presence in the grocery delivery market by launching delivery of essential items in more than 125 cities in India.
Recent moves by Zomato into the grocery space echo its late entry into food delivery.
After starting out in 2008, Zomato became the largest restaurant listing platform in the country, but founder Deepinder Goyal saw the company as a tech-product firm rather than an operations company and avoided food delivery, an operations-driven space that involves building local logistics networks. Swiggy’s rapid expansion in 2015 forced Goyal to reverse his stance and pushed the company into food delivery. Zomato is now a close No.2 to Swiggy in the sector.
To justify its rich valuation of $3.6 billion, Swiggy has been moving into newer categories such as grocery delivery. Last year, it launched a local courier service in some cities similar to that of Dunzo.
As the covid-19 crisis has prompted millions of people to order groceries online, Swiggy has moved to capitalize on this demand. Zomato too launched a service, Zomato Market, this month to deliver groceries.