Why Uber Eats Selling its Business to Zomato was Inevitable

New Delhi: Food delivery start-up Zomato acquired the Indian business of Uber Eats on Tuesday but market experts tracking the global business venture saw the offload coming.

This is an all-stock deal that will give Uber 9.99 per cent stake in the Indian food delivery and restaurant discovery platform. Starting Tuesday, Uber Eats in India will discontinue operations. All direct restaurants, delivery partners, and users of the Uber Eats apps will be transferred to the Zomato platform.

Uber has been in talks with Zomato for months in an effort to drop its money-losing businesses.

The American multinational ride-hailing company has been facing increased pressure from investors to turn a profit, and it spent much of 2019 cutting costs and laying off employees. This was preceded by an unexciting initial public offering in May 2019.

Despite growth in volume, Uber Eats had been facing stiff competition in India because of Zomato and Swiggy walking away with first-user advantage.

The two Indian food delivery businesses control about 80 per cent of the food delivery market. Uber also has had to make sizeable expenditure on subsidies and promotional offers to gain new users.

The deal may prove to be a double advantage for Uber. The multinational will now be able to cut losses and as part of the deal, acquire stakes in a start-up that was valued at $3.55 billion this month.

In an official statement, Zomato said they will now be able to add 10 million monthly food orders to their tally. Added to their already existing 40 million, they expect to outnumber Swiggy, especially in southern parts of India that are considered Swiggy’s stronghold.

According to a report by New York Times, Uber Eats never managed to attract many restaurants or customers in India. In fact, for the first three quarters of 2019, Uber Eats in India accounted for 3 per cent of the gross booking for Eats globally and at least 25 per cent of its adjusted operating losses.

Uber had also projected an operating loss of Rs 2,197 crore in its food delivery business for the five months through December 2019, according to a valuation report prepared by KPMG affiliate BSR and was part of regulatory filings.

The global business venture also suffered a setback when co-founder and former CEO Travis Kalanick resigned from its board of directors in December last year. Kalanick, who helped found Uber in 2009, stepped down from the company's helm in June 2017 under pressure from investors after a string of setbacks.

Meanwhile, the deal comes days after Zomato had raised $150 million in funding from existing investor Ant Financial, an Alibaba affiliate, at a $3 billion valuation.