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Zomato gets CCI nod for Grofers investment, but says no plan on drawing any synergies yet

With this approval, Zomato is all set to re-enter the grocery delivery market which experts say could shoot up the competition even as rival Swiggy continues to expand its grocery service. 

The Competition Commission of India on August 13 approved Zomato’s acquisition of an approximately 9.3% stake each in Grofers India and Hands on Trades. While the former is engaged in online grocery delivery in over 35 cities across India, the latter is engaged in business-to-business wholesale trading of groceries and contract manufacturing of food products.

The two biggest food delivery platforms in India, Zomato and Swiggy, are quickly making headway in the grocery delivery segment as well. This latest investment by Zomato, which recently made a blockbuster public market debut, will help the platform better compete with Swiggy’s Instamart, which has already begun making gains in many cities.

“The funding is not only expected to give Grofers the much-needed backing to fight competition that is only getting bigger, but may also be a beginning of Zomato’s partnership with Grofers, which may culminate into a strategic partnership,” Rishi Anand, Partner, DSK Legal told MediaNama.

Zomato’s re-entry into grocery delivery

Zomato first indicated an interest in the grocery delivery market in April 2020 when it entered this space through Zomato Market, but the company exited the space in June the same year.

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However, in its red herring prospectus, filed at the time of its initial public offering in July 2021, Zomato said that it was in the process of rolling out a grocery delivery marketplace on its platform on a pilot basis, indicating that it is reviving Zomato Market. “We are coming back to experiment and see how we build this hyperlocal part of the business,” Zomato co-founder Gaurav Gupta said at a press conference on July 8. The grocery delivery service began appearing in select areas and for select users in Delhi last month.

“Zomato’s re-entry into the online grocery market space is set to shoot up the competition in an already competitive space,” Pratyush Miglani, Managing Partner, Miglani Varma & Co told MediaNama. “With Reliance launching JioMart, Tata acquiring a majority stake in BigBasket, Swiggy investing in Instamart and the likes of Amazon and Flipkart also entering the space, Zomato’s effort will be to counter these market leaders,” Miglani added.

Zomato not eager to exploit synergies right away

When Economic Times asked Zomato cofounder and chief executive Deepinder Goyal on how the investment in Grofers ties up with the company’s plans in the grocery delivery space, Goyal replied: “We do not have much of an idea ourselves, so we are not sure if we want to do it in the long-term. But it is a big space and we are trying.”

“The investment in Grofers is separate and we have our own grocery offering (Zomato Market) which is a marketplace model and sources from local stores. This is not on the back of the Grofers investment. For now, we are not drawing any synergies from Grofers. There is nothing planned right now, it is still a long shot,” Goyal added.

In response to a follow-up question on what drove Zomato to invest $100 million in Grofers, Goyal said “It was the last independent grocery company left. So we wanted to put in money there and see if we could do something in the future. We do not have any rights or anything so the investment is purely financial in nature.”

Grofers enters unicorn club

According to Financial Express, Zomato has infused around Rs 518 crores ($70 million) in Grofers and Rs 223 crores ($30 million) in Hands on Trade, for a 9.16% and 8.94% stake respectively.

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Zomato’s investment values Grofers at over $1 billion, making it the latest entrant into India’s unicorn club, which has already seen 25 new entries so far this year.

“Considering how enticing the e-grocery market has become for investors, it is also very likely that Zomato will, at some point, seek to acquire Grofers India eventually,” Miglani said.

Swiggy doubling down on groceries

Last month, Swiggy closed its $1.25 billion investment round led by SoftBank Vision Fund 2 and its existing backer Prosus. “Our biggest investments will be in our non-food businesses that have witnessed tremendous consumer love and growth in a short span, especially in the past 15 months of the pandemic,” Swiggy CEO Sriharsha Majety said following the round.

Swiggy has “the railroads in place to empower multiple businesses to reach the new age consumer on a daily basis, and food delivery is just the beginning,” Sumer Juneja, SoftBank Investment Advisers, added.

Earlier this month, Swiggy expanded its grocery service Instamart to five more cities: Delhi, Mumbai, Hyderabad, Chennai, and Noida. Previously, the service was available only in Bangalore and Gurugram. Furthermore, Swiggy promised 15-30 minute delivery times in these cities. Grofers too is piloting its 15-minute delivery service in select cities.

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