Ride-hailing giant Uber Technologies Inc has exited the food delivery business in India and sold its Uber Eats arm to Zomato in an all-stock deal on Tuesday.
The deal will give Uber 9.99% ownership in the SoftBank-backed Zomato and help the US cab aggregator to cut back on loss-making business segments globally.
For Uber, this move can result in annualized savings of nearly US$750 million, according to last year’s regulatory filing. In the first three quarters of this fiscal year, Uber Eats India totalled 3% in gross bookings but accounted for more than 25% of adjusted EBITA losses.
While the two companies did not share the deal size, sources peg it around $300-350 million. Uber Eats in India will discontinue operations and direct restaurants, delivery partners and its users to the Zomato platform.
“We are proud to have pioneered restaurant discovery and to have created a leading food delivery business across more than 500 cities in India. This acquisition significantly strengthens our position in the category,” Zomato CEO Deepinder Goyal said.
Dara Khosrowshahi, CEO of Uber, said: “Our Uber Eats team in India has achieved an incredible amount over the last two years, and I couldn’t be prouder of their ingenuity and dedication.”
“India remains an exceptionally important market to Uber and we will continue to invest in growing our local rides business,” he added. Uber Eats will, however, continue its operations in Sri Lanka and Bangladesh.
The deal comes close on the heels of Zomato raising $150 million in funding from existing investor Ant Financial, an Alibaba affiliate, at a $3 billion valuation.
Uber Eats, which was launched in 2017 in India, had about 26,000 restaurant partners and garnered about 12% of the market. The Indian food delivery market is dominated by Naspers-backed Swiggy, which delivers 42 million orders a month, while Zomato delivers about 37 million.
With Uber Eats acquisition, Zomato can upstage Swiggy and strengthen its presence in South India, where Swiggy is the leading player. The battle for the market share between the two companies is expected to intensify.
Industry watchers caution that for Zomato this acquisition need not guarantee all Uber Eats customers will shift to its platform. Some could switch to Swiggy too. However, the exit of Uber Eats will mean less competition and the reduction of the bargaining power of restaurants. This will help the two players to optimize revenue and costs.
But it cannot do away with discounts to customers, as it will take a toll on its sales volumes.
The acquisition is expected to lead to job losses. Though Zomato has assured that the delivery crew of Uber Eats be on-boarded to its fleet, job losses are expected. About 245 full-time employees at Uber Eats India have been affected, Forbes reports. They will be asked to apply for vacancies within Uber’s other verticals, and will stay on the company’s payrolls until March 3.
The new acquisition signifies the ongoing trend of consolidation in the food delivery market as in other online and app driven businesses. In the field of e-commerce there is Flipkart, owned by Walmart, and Amazon, and among ride-hailing companies it is Uber and Ola.