Zomato may buy Grofers in an all-stock deal valuing e-grocer at $750M

Zomato may buy Grofers in an all-stock deal valuing e-grocer at $750M

In what could possibly emerge as a big consolidation move in India’s consumer internet sector, food delivery and restaurant discovery platform Zomato is learnt to be in talks to acquire online grocery retailing startup Grofers in an all-stock deal, said two people in the know.

Grofers, which has seen heightened demand in the past few weeks on the back of the Covid-19 pandemic, is expected to be valued at around $750 million, these people said. Japanese conglomerate SoftBank Vision Fund, the largest shareholder in Grofers, may look to invest around $100-200 million in the merged entity, sources close to the matter said.

The discussion between the two Gurgaon-based companies comes on the back of a recent partnership that Zomato and Grofers struck for grocery delivery, as reported first by ET. This involved Zomato Market, its newly launched grocery offering, fulfill customer orders from offline stores that have an existing tie-up with Grofers.

If the transaction goes through, it will be the second big buyout by Zomato which acquired the Indian operations of UberEats earlier this year to bolster its food-delivery offering in the domestic market.

The Ant Financial-backed company is currently valued at around $3.2 billion while Grofers was valued at around $650 million, as per its last round of financing led by SoftBank Vision Fund in December last year. Sequoia Capital, the Silicon Valley-based venture capital fund, is a common early investor in the two companies.

“They have been engaged in talks over the past few weeks sensing a big opportunity in the grocery segment. Their pilot run across Delhi NCR seems to have clocked high order numbers to start with, further strengthening the ongoing negotiations,” said a person in the know.

Graphic: Rahul Awasthi
Zomato wants to leverage its last-mile expertise in delivery while taking advantage of a wide range of private labels that Grofers manufactures.

While the margins in the grocery business are low, an added capital infusion from SoftBank will give both the companies ammunition to fight BigBasket which is backed by Alibaba, Swiggy and the likes of Amazon and Flipkart in the future. Zomato’s lead investor is Ant Financial, an affiliate of Alibaba. Interestingly, SoftBank is also a significant shareholder in Uber and is now an investor in Zomato after the UberEats India sale.

Albinder Dhindsa, cofounder & CEO of Grofers, did not respond to ET’s query while a Zomato spokesperson said, “We have partnered with Grofers, along with FMCG companies, local groceries stores, and modern retail chains, to pilot our grocery delivery service. We are not aware of any other conversation with Grofers.” A SoftBank spokesperson said, “We cannot comment on speculation.”

Graphic: Rahul Awasthi
“Grocery delivery has always been on our long-term radar since it fits into our vision of ‘better food for more people’,” Goyal had told ET last week. “Food delivery and grocery are the two highest repeat cases for urban consumers. Over the last few months, before the coronavirus crisis, food delivery volumes had started to plateau,” said an investor directly aware of the deal. “Expansion to adjacent businesses is the only way to grow,” he said.

“Alibaba which is an investor in BigBasket was keen to merge it with Grofers and Zomato. However, it was not an easy deal to pull off,” said a source on the condition of anonymity.

The Indian e-grocery market has witnessed a bunch of these merger talks being held before as well but no deal has come through so far. In 2017, BigBasket and Grofers had explored a potential merger while Amazon had held talks to acquire BigBasket but the discussions did not fructify into a deal.

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