In a shocking turn of events, Uber Eats has announced that they are in the final stages of negotiations with their arch-nemesis, Swiggy, for acquisition. Experts are saying that this deal will close by the end of next month, and will mark Swiggy’s largest acquisition to date. It will also mark the first instance of Uber Eats divesting any of its global food business. However, this transaction is not going to be a traditional buyout – sources close to the deal are estimating that it will be a share swap. The deal will give Uber a 10% stake in Swiggy, which was last valued at 3.3 Billion USD.
Why is Uber selling its food arm to Swiggy?
It is time for Uber to cut down on their total losses, which is a part of their current global strategy. This strategy has been crafted because the brand is getting ready for its first ever IPO, with its valuation being 120-150 Billion USD. Their food arm, Uber Eats, is valued at 20 Billion USD alone and generated close to 1.5 Billion USD during the first quarter in 2018.
A source who is close to the deal and wants to remain anonymous said “It is prudent to be invested in Swiggy than burn capital competing for the same set of restaurants and consumers,” Over the last year, arch-rivals Zomato and Swiggy have been aggressively competing in order to grab as many new customers as possible. In the midst of this, both Uber Eats and Ola’s FoodPanda have been offering huge discounts to rope customers in. As a result, both these companies have seen a very high cash burn.
Uber eats incurred a total cash burn of 25 million USD, while Swiggy burns close to 40-45 Million USD every month. It is important to note that with this burn going on, Uber Eats sees 9 million orders per month. Ola’s Foodpanda, on the other hand, has chosen to slow down its marketing efforts and is currently zipping along in the slow lane. They are focussing more on their own cloud kitchens instead of competing in the race to acquire customers in the same way as Swiggy and Uber Eats.
What does Swiggy have to say?
Swiggy’s largest investor is a South African based firm called Naspers, which has taken a bullish approach when it comes to the food delivery space in India. Bob van Djik, the CEO of Naspers, recently said “Food delivery is a perfect example of our strategy in action with online platform capabilities that address a large offline societal need in a high-growth market. It’s still early days, but if you look at the growth in revenue and the underlying operating metrics, it gives us real confidence in the potential here,”
The move seems like an apt one for Uber Eats. Though the Indian market is a huge one, there can only be so many micro-logistics networks operating within the same space and making profits while they are at it!