Can Selling a Business be a Strategic Move for Uber India?
Entrepreneurs, today, instead of striving hard in the market believe in selling off their business and venture into an untapped market. Clinging to the prime business, despite recurring losses and stiff competition, is not a good idea and this is what Uber has done lately. The San Francisco-based ride-hailing firm, Uber Technologies Inc sold its food delivery vertical, Uber Eat as the company is believed to eliminate loss-making verticals.
The Indian food delivery business, Zomato has acquired Uber Eats India and with this move, it has leapt ahead of its archrival, Swiggy in the competition. The online food delivery company has procured UberEats in an all-stock deal, pegging it roughly $350 million and offering 9.99 per cent ownership to the parent firm, Uber in Zomato, according to the company’s official statement.
“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,” Deepinder Goyal, Founder, and CEO at Zomato, said.
Emerging Changes Under this Transaction
After this transaction, the competition in the food delivery market will become intense and irrespective of this, this niche is small as compared to the foodservice segment in its entirety. This category will surge in the offing and create a wide nexus with restaurateurs as well as food providers.
Under the new deal, various changes will take place that, in turn, impact on users’ operating systems. Firstly, Uber Eats India users’ will transition into Zomato users as the former company will not remain active in India and consequently, its users will be redirected to the latter’s application. Secondly, nearly 70,000 active delivery partners, which were associated with Uber Eats, will be on-boarded on Zomato. Thirdly, employees that were working under the vertical, UberEats will be hugely impacted as the Indian food delivery company is not absorbing them. They will be either shifted to Uber’s other businesses or offered outplacement services, The Times of India reported quoting an anonymous source.
More so, the deal will immensely help Zomato to expand its footprint in the Southern part of India, wherein its archrival, Swiggy is having a strong presence. According to the business intelligence platform, RedSeer’s report, the combined market share of Zomato and UberEats is accounted for 52 per cent in comparison to Swiggy that pegged at 43 per cent in December 2019.
UberEat’s acquisition happened following Zomato is in the midst of raising funds from its current financial backer, Ant Financial for $150 million, according to the cited media agency.
According to Zomato’s Q1 and Q2 financial report 2020, the food delivery company has increased its revenue to $205 million, plummeted upwards by 225 per cent from the earlier first half of FY 2019 ($63 million). At the same time, it has attained a 60 per cent burn rate in losses in the first two consecutive quarters.
The company also asserts that it has increased its offerings to more than 500 Indian cities in FY 2020 in comparison to the previous financial year. More so, its order volume and GMV increased to 214 million and $ 821 million in the first half of FY 2020 from 55 million and $254 million (in H1 FY 2019) respectively.
The company’s report also states that average user frequency has incremented to 3.6 per month comparatively. In addition, customer NPS has grown three times from September 2018 to September 2019 and average monthly transacting users reached 11.2 million in H1 FY 2020 from earlier 3.6 million.
Why Uber Sell UberEat?
The American cab aggregator, Uber is experiencing lackluster in the market following its IPO launch. The company’s stock price is still down by 22 per cent in the foreign exchange market.
Between August and December 2019, UberEats garnered revenue of INR 339 crore and a loss of INR 762.5 crore in the food delivery business, The Times of India reported citing Uber India’s filing with Ministry of Corporate Affairs.
The prime causes of the increased losses are lower commission revenue than delivery costs, heavy refunds to the customers and money disbursed to restaurants for the food sold at discounted rates by UberEat.
Owing to increased expenditure, competition and unsustainability, UberEat suffered losses which, in turn, affected the profits of the Indian bureau, Uber India. In order to trim losses, the parent company decided to sell its food delivery arm to its opponent, Zomato.
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, 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.”
Is Selling UberEat a Right Move?
In the decelerating Indian economy, when the consumer market is being hit, sustainability is the major problem that the companies are facing currently. In such scenarios, if a company fails to achieve desired profits for a prolonged time then it would have to take a strategic move. If selling one of the verticals like Uber India, is a decisive move then a company should do it before incurring further losses. Similarly, merging with other business entities and acquiring other companies can be a suitable move reflecting the company’s best interest.
Recently, McDonald’s partnered with Zomato for delivering food in the Northern and Eastern regions of India and similar to this, Bains Capital is in discussions to buy the ice-cream making company, Dainshaw’s Dairy Food.
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