Zomato`s Acquisition of Blinkit: Swallowing a Poison Pill?

Case Code: MKTG464 Case Length: 16 Pages Period: 2021-22 Pub Date: 2024 Teaching Note: Available

Price: Rs.400 Organization : Zomato Industry :Foodservice Countries : India Themes: E-commerce E-commerce Revenue Models, Services Marketing

Abstract Case Intro 1 Case Intro 2 Excerpts

Excerpts

The IPO

In 2020, even as Zomato was fighting the first wave of Covid-19 and the subsequent lockdown, a change in the foreign direct investment (FDI) rule that prevented Chinese investors like Ant Financial from supporting Indian companies came as a bolt from the blue. Zomato was looking at a six-month cash runway, and hence an IPO was perhaps the only option left for it . On July 23, 2001, Zomato made a debut on the stock exchange with its final offer price of Rs. 76. The stock closed at Rs. 125.85 on BSE (Bombay Stock Exchange) , up 65.59 percent with respect to the issue price. In spite of the large size of the IPO at Rs. 93.75 billion and high valuation, Zomato saw a good overall subscription of 38x, the highest in the previous 13 years among IPOs in India, which were valued at over Rs. 50 billion each. The market capitalization of Zomato crossed the Rs. 1 trillion mark with the listing..

Food Delivery Industry in India

Zomato’s biggest rival was undoubtedly Swiggy. In 2021, the founder of SoftBank , Masayoshi Son, was planning to invest in the food and grocery delivery business in India. After separate calls with both Swiggy and Zomato, he decided to invest $450-$500 million in Swiggy at a post-money valuation of close to $5.5 billion in July 2021. This was besides the $800 million Series J round that Swiggy had closed in 2021 at a valuation of $5 billion. Masayoshi Son selected Swiggy because he felt that it had a better diversified offering than Zomato, especially with regard to Q-commerce with InstaMart. It was also stronger as it already had funds like Prosus as investors. However, Swiggy had no plans to go public as of 2021..

Rise of Quick Commerce

Q-Commerce dealt with 10-20-minute deliveries, and as of 2022, the platforms providing this were growing 20-25% faster in volume compared to four-hour or longer deliveries. As per a report by Red Seer, a consulting firm, Q-Commerce market in the country was expected to grow by 15 times its 2021 size by 2025, reaching $5.5 billion in market size. This was higher than in the case of China, in terms of customer adoption. The demand was driven mainly by mid- and high-income households in Tier 1 cities and large metros. Q-Commerce also had a very high Net Promoter Score (NPS) because the shopping experience was fast and there was a higher chance of customers recommending such services to a friend..

Acquisition of Blinkit

Blinkit went by the name Grofers when it was founded in 2013 as an online grocery delivery service. By 2018, it had invested extensively on building warehouses and developing private labels, which helped it enhance economies. It attracted funds from investors like SoftBank. Grofers introduced express grocery delivery in 15 minutes in India by building dark stores across cities. In 2021, Zomato acquired a 10 per cent stake in Blinkit by investing $100 million In August 2021, it introduced 10-minute delivery in the top-12 cities, after completing over 20,000 under-15-minute deliveries per day across 10 cities. Customers of the company could use a mobile application to order groceries and essentials online. .

Looking Ahead

Goyal’s decision to acquire Blinkit seemed like a corrective measure for an investment Zomato made in Blinkit, which had not gone well, as per some experts. The markets too reacted negatively and as a result, Zomato’s share price went down. One of the reasons for skepticism about the deal was that one of the promoters of Zomato, Akriti Chopra , was married to Albinder Dhindsa . There was also concern over an equity dilution of Zomato of up to 8% of the capital and spending Rs. 44.47 billion on an emerging business with an unproven model was considered too much Further, the actual price paid by Zomato would be around Rs. 74.47 billion if the debt assumption and the investments to cover Blinkit’s losses were added. Zomato might also have to fund Blinkit further and only hope for profits since it was also making losses..

Exhibits

Exhibit 1: Zomato – Failed Initiatives
Exhibit 2 List of All the Funding Rounds of Zomato
Exhibit 3: Major Investments Done By Zomato
Exhibit 4: Zomato Acquisitions
Exhibit 5: Success and Awards Won by Zomato
Exhibit 6: Fiscal 2020 Unit Economics (INR) March 2019 to March 2020
Exhibit 7: Food Delivery Unit Economics
Exhibit 8: Key Metrics of Zomato for FY 2018 to 2021

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