From Food Aggregator to Booming E-Grocery

small troylley with globe on laptop

Indian food aggregator Zomato has announced a merger with e-grocer Blinkit, (formerly Grofers India Pvt. Ltd.), subject to approval from the Competition Commission of India. The development, signaling its entry into the nascent online grocery market in India, which eclipses the foodservice takeaway market in sheer value sales, is a rational move by Zomato.

The rising demand for hyperlocal services from time-crunched and convenience-driven consumers means the online food and grocery retail sector is projected to expand at nearly three times the rate of the forecast for food service takeaways, according to leading data and analytics company, GlobalData. 

Grofers rebranded itself as Blinkit in late 2021, after Zomato acquired a 9.3 percent stake for $100m in August. However, high capital expenditure amid increasing pricing pressure due to rising competition saw Blinkit exhaust its cash reserves. Zomato extended a $150m loan to help the cash-strapped startup and reaffirmed its commitment to invest $400m into the q-commerce space.

The COVID-19 pandemic has seen consumers seek the safety and convenience of contact-free deliveries and cashless payment. Even after the pandemic restrictions were lifted these habits stuck.

"32 percent of Indian respondents in GlobalData’s Q4 2021 consumer survey [are] continuing to buy groceries online, 21 percent are starting to do this, and 27 percent doing this more frequently,” noted Consumer Analyst at GlobalData, Bobby Verghese.

The merger allows Zomato to take on archrival Swiggy, which already operates the Instamart e-grocery, and has earmarked a $700m outlay for q-commerce.

“While the added CAPEX for the q-commerce business will further widen Zomato’s net loss, in the long run, the synergies from its presence in the food aggregation and grocery delivery verticals can help the company improve its overall cost economics,” Verghese concluded.

Both Zomato and Swiggy can leverage their fund-raising capabilities, refined user experience, sizable delivery workforce, and strong brand recall to meet head-on cash-rich competitors.