Uber sells food delivery business for 9.99% stake in Zomato

NEW DELHI: Uber has reached an agreement to sell its India food delivery business to Zomato in an all-stock deal by diluting a 9.99% stake to the San Francisco-based ride-hailing giant, the two companies said in a statement. The deal size is being pegged around $350 million, as online food delivery becomes a two way battle between Zomato and Swiggy.
TOI was the first to report in its November 25 edition that UberEats India is back on the block and Zomato is the frontrunner to acquire it.Uber is not expected to make an investment in Zomato as a part of its ongoing round immediately, nor will it be getting a board seat.

Under the terms of the deal, UberEats application will not be active in India and users will be directed to Zomato when they login. Zomato will also get about 70,000 active delivery partners on the Ubereats network as a part of the deal besides restaurants. About 200 Uber Eats India employees will be impacted by this deal, as Zomato is not absorbing them. While some employees will be absorbed in Uber’s ride-hailing business, others are being given outplacement services, said one of the sources briefed on the deal.
"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,” said Zomato founder and CEO Deepinder Goyal in a statement.
Zomato market share to reach 52%
The deal is attractive for Zomato as it will help it strengthen presence in the cities in south India, which has till now been a strong area for main rival Swiggy. It will help it increase market share, with a Redeer report pegging the combined Ubereats and Zomato market share to 52% of gross order volume as compared to Swiggy's 43% for December 2019.
Swiggy had told TOI last month that it has a 60% gross sales market share in the food delivery market.
Talks for the acquisition come even as Zomato is in the midst of raising capital where it has already got a commitment from existing backer Ant Financial for $150 million. The funding round valued Zomato at $3 billion pre-money.
The investment is part of a larger round of $500-600 million being raised by Zomato as it continues to battle Swiggy for market leadership in the food delivery space. The company has been working with investment banks Goldman Sachs and CLSA for the capital raise.
Zomato has also been bringing down its burn rate over the last two quarters as it had come down to $20 million a month in October 2019 from $45 million in March 2019. This number has now further come down to $15 million in recent months, said sources briefed on the matter.
India’s online food delivery companies seen a significant increase in their losses as the battle for market share peaked in 2019. Swiggy saw total losses increase nearly six-fold to Rs 2,364 crore FY19, while Zomato saw them jump by 24 times to Rs 2058 crore in FY19 from Rs 84 crore in FY18. Ola-owned Foodpanda also reported a 230% increase in losses to Rs 756 crore.
Uber to double down on ride-hailing
With exit from food delivery, Uber will double in its competition with rival Ola for the ride-hailing business. “India remains an exceptionally important market to Uber and we will continue to invest in growing our local Rides business, which is already the clear category leader. We have been very impressed by Zomato’s ability to grow rapidly in a capital-efficient manner and we wish them continued success,” said Dara Khosrowshahi, CEO of Uber, in a statement.
The comes as Uber has been under pressure to reach profitability after its lackluster IPO, with the share price still down more than 22% from the listing price. For the food delivery business, called UberEats, the India market has been a drag on global margins and the company recently said on the analyst call that it will exit markets with low returns on investments, focusing on markets where it can be the first or second player. It has already shut UberEats in South Korea in September 2019.
UberEats is a distant third in the Indian food delivery market and the average order value on platform is also low. It has projected a loss of Rs 1,451 crore or about $200 million for 12 month period ending December 2020 in India, according to filings with Registrar of Companies. Uber’s CFO Nelson Chai on analyst calls earlier has said that India is a market where it has a low or negative take rate (commissions it earns on deliveries). “….it is a market in that we are funding both the eater, the courier, as well as the restaurant in terms of building the business,” he said in during the first-quarter analyst call in May 2019.
UberEats had also held talks with Swiggy, Zomato, and Amazon India in early 2019 for a sale before its public offering in May. Swiggy and UberEats had advanced discussions earlier this year but a deal did not go through because of differences in valuation besides taxation and legal issues.