Thoughts on the Uber Eats India and Zomato deal

The recently announced deal between Uber Eats India and Zomato is a great coup for both parties. A $350M exit of a heavily loss making endeavor for Uber and a marketing for equity deal for Zomato along with a strong partner cementing its #1 position.

Explanation below (long read) - 

Uber Eats, despite significant investment by Uber, was always the #3 in the food delivery race in India after Swiggy and Zomato ensured fast growth with high capital spend. It was also the most unsustainable of their global regions. 

When Uber Eats launched in India in 2017, the market commissions as low as 10-15% whereas you can get 25-35% commission range in more mature markets. This slowed down Uber's sales cycle till both their target commissions moved as well as market commissions started to go north

Plus, there was limited synergy with the rides business compared to in US or EU where many orders are fulfilled by Uber's cars, vs in traffic laced Indian cities, bikes are the only practical option to deliver. Meaning Uber had to setup a separate biker delivery fleet for Eats

As a result, despite pumping in $300+M into Uber Eats India, it contributed to only 3% of global orders while accounting for 25% to global EBITDA loss. It had to go. Per Dara's announcement to only have #1, #2 position its days were numbered. 

There were only 2 likely suitors for the business Swiggy and Zomato. Typically in such situations you can see a firesale as the value of such a business to an acquirer is low with high overlap on both partner and customer side. But Uber had couple of tricks up its sleeve

1) The intense rivalry between Swiggy and Zomato for #1 position in India as both look to raise even more capital, #1 status can mean a much higher valuation multiple. Uber eats going to a rival can mean being #2 and play catch up for long time.

2) Uber's successful ride hailing business with est 2 million rides per day, and likely more DAUs than both Swiggy and Zomato. It is valuable to get access to these customers as a marketing channel. Thats one of the big reasons you see so many ride cos going for food delivery too

It would be interesting to see in next months if Uber rides app continues to promote delivery for Zomato after the deal as well as the resulting media value of such exposure for Zomato. Even estimating modest CPLs/CPAs this will go into tens of millions value a year for Zomato

Its clear that Uber Eats' own customers and partners are of limited value to Zomato because of high overlap. So there is immediate cease of operations for Uber Eats without proper onboarding of customers and and few contracts from Uber retained where they have better commissions

The deal also gives Uber a substantial interest of 10% in Zomato and if earlier media leaks are true may also invest further cash into Zomato giving Zomato a strong backer

Uber under Dara has executed this playbook rather successfully & dispassionately in China, SEA, Middle East and Russia before. The markets like it too with Uber stock going up in the days following the leaks of this deal anticipating acceleration of Uber's march to profitability.

Overall is a win-win for both sides with enough to gain. The battle for the dominance of food delivery in India is not over yet though with a clear duopoly now will be interesting to see if the behavior is collaborative or competitive. Till then enjoy the discounts ! </end>