Zomato expects to onboard new users and snag up to 25% more orders following its acquisition of Uber Eats India. Asserting that the deal was not expensive, Deepinder Goyal, CEO of Zomato, told ET in an exclusive interview that parting with about 10% stake to buy the third key player in the sector will help the Gurugram-based company gain access to the southern market and create value for the merged entity. Edited Excerpts.
What is the value you see from Uber Eats, considering you parted with almost 10% of Zomato’s equity?
I’d give away 10% only if I’m gaining more than 10%. We often make the mistake of looking at the business at an India-level, that’s not how it works. It’s on a city-to-city level. In multiple cities in the south, Uber was the number one or number two player. South has not been a market where we have been typically very strong. The incremental value on a city-wise basis is massive. On a per order basis, we were burning more (cash) in these cities but this will now improve our unit economics. Food delivery is almost 80% of our revenue, so if our business goes up by 20% and I have paid10% of my stock, it will be a win-win deal for us.
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You don’t think you have given a big chunk of Zomato?
It’s a trade, you give value if you think they will drive more value…so there is no question of giving more!
Did Swiggy being in the fray for Uber Eats influence the way you aggressively went about the acquisition?
It was a competitive process, but we offered a price that was right for us. Uber, too, would have assessed which stock they should buy, and they took a strategic call on which company would give them more value.
How many non- Zomato users will you add as part of the deal?
We will get about 20% new users on a monthly active basis and manage 25% extra orders. This is because we expect 80% of their business will move to us.
How do you expect to leverage from the restaurant side?
Almost 500 exclusive restaurants, which are mostly in the South, have all moved to Zomato. This was pretty much the only non-overlapping restaurant base.
What happens to the contracts that restaurants had with Uber Eats? Will that continue or new ones will be stitched?
We have a different form of contract, while those contracts get transferred, new ones will also need to be signed by the restaurant partners. Teams are working on that.
What does the deal mean for the overall food-delivery industry? The real big consolidation move would have been if Zomato and Swiggy merged? Will this help in reducing cash burn?
From a burn point of view, we will be the same burn, which is down to $15 million per month, from $45 million in March last year. We are largely focused on our own business. This was a strategic acquisition for us – to grow in cities we were not strong in. We are not thinking of it as something that will change the market reality, because the way we are executing in the last six months, we are far ahead of the average market reality.
Which is what?
Our average order value is higher than competition’s and our discounts are lower, so the quality of business is better, overall. We have actually not focused on the competitive side of things for a long period of time. The idea is to only improve the quality of our business and Uber Eats was a step in that direction. It was not about buying a number three player, but buying a number one or number two is some cities where we were lagging behind.
How important was it to get Uber on your cap table? Would they bring in primary capital soon?
They are not an investor on the cap table, they are only a shareholder. As for future investment, I won’t be able to comment.
Will discounting continue on Uber Eats and will we see an increase in cash burn because of that?
There will not be an additional burn for us, but consumers won’t find their food to be more expensive when they move to Zomato. There will be a short-term spike of $3-5 million costs to move over the user base to us, but that will be one-time. We (Zomato + Uber Eats) on Tuesday registered 6% more than our combined order volumes as customers moved to our platform. This cost will last upto February 15, but beyond that, our burn rate should be back to $15 million per month and we should have been able to capture the upside of the deal.
How are you pushing Gold membership to new users?
Those users are now transferred to Zomato’s ecosystem. If they want to buy Gold they can. As a transition benefit, they get three months free Gold membership to Uber Eats users. This may result in Zomato Gold revenue going down by 5-6% in the short term.
You have been actively talking about cutting burn?How do you look at the next six few months in the food-delivery space with cash not coming easy for businesses clocking losses?
We already have $250 million in the bank and will raise about $350 million more, but our burn rate continues to come down. Most of that money will be our warchest in case competitive activity spikes up again. But we will continue to focus on quality of service and that’s the narrative we are driving in the organization. People are getting used to ordering food and the market is in very early stages. So, we will continue to grow and make our business more efficient. We have a plan in mind, but keeping agility as well. There is no trouble on the restaurant side now. We continue to work together.
How much of your strategy depends on Swiggy cutting down their cash burn as well because it’s after all between you two now?
We have our own strategy and it’s working very well. I don’t think it depends on somebody else waking up on the wrong side of the bed and starting to spend more.
[“source=economictimes”]
