Indian food aggregator Zomato announced merger with e-grocer Blinkit, (formerly Grofers India Pvt. Ltd.), subject to approval from the Competition Commission of India, in March 2022. The development, which signals its entry into the nascent online grocery market in India, which eclipses and outpaces the foodservice takeaway market in sheer value sales^*, is certainly a rational move by Zomato, finds GlobalData, a leading data and analytics company.

Bobby Verghese, Consumer Analyst at GlobalData, comments: “Given the rising demand for hyperlocal services from time-crunched and convenience-driven urban consumers, GlobalData projects the online food & grocery retail sector to expand by 21.6% CAGR over 2021-2025, compared to the 7.4% CAGR forecast for foodservice takeaways^*.”

In August 2021, Zomato acquired a 9.3% stake in the erstwhile Grofers for $100m, and swiftly rose to the ranks of unicorn startups during the year. Grofers rebranded itself as Blinkit in late 2021 to reflect its shift to the promising q-commerce vertical.

However, due to the high capital expenditure (CAPEX) and working capital requirements for its 10-minute grocery deliveries model, amid the increasing pricing pressure due to rising competition, Blinkit quickly exhausted 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.

Verghese adds: “The COVID-19 pandemic accelerated the growth of online grocery retail as more Indians sought the safety and convenience of contact-free doorstep deliveries and cashless payments. Even after the pandemic restrictions were relaxed in 2021, the habit stuck, with 32% of Indian respondents in GlobalData’s Q4 2021 consumer survey continuing to buy groceries online, 21% starting to do this, and 27% doing this more frequently^**.

“In contrast, a smaller proportion of Indian respondents in the same survey were ordering takeaway/delivery from restaurants^**. This is attributed to home cooking trend carrying forward into 2021, and the partial reopening of foodservice outlets.”

Verghese concludes: “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. The merger will also allow Zomato to take on archrival Swiggy, which already operates the Instamart e-grocery, and has earmarked a $700m outlay for q-commerce.

“Both the 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 such as Tata’s BigBasket, Amazon Fresh, and Flipkart Grocery, who have expressed interest in q-commerce.”

*Data taken from GlobalData Foodservice and Retail Intelligence Centers — Market Analyzers, accessed in March 2022

**Data taken from GlobalData Q4 2021 Consumer Survey – India, with 530 respondents, published in December 2021