After grocery, food delivery is emerging as the next big frontier for India’s largest ecommerce companies. Flipkart, Paytm and Amazon India are all actively exploring investments, acquisitions or expansions into the food-delivery business, a once-hot segment that soured quickly before a wave of consolidations brought about some stability.
According to more than half a dozen entrepreneurs and venture capital investors interviewed by ET, all these Internet giants have separately held talks with the food-delivery segment leaders Zomato and Swiggy besides cloud kitchen players like Freshmenu for investments.
Flush with cash following recent fund-raisings, they also have an eye on sector-specific online retail stores as well as travel and entertainment ticketing companies, these people said. This rush for diversified investments has triggered a race of sorts among the Internet giants to evolve into larger ecommerce conglomerates.
This is similar to the one triggered in China by their local internet giants, as the Indian ecommerce companies seek to increase the frequency of transactions on their platforms.
“Amazon’s approach is more deliberate in terms of making an investment while Flipkart and Paytm are aggressively scouting for deals,” said an entrepreneur involved in some of the discussions. “The hunt is being driven by a fear of missing out or to deny an opportunity to (their rivals) rather than for a very well thought out strategy or a major business use-case.”
Flipkart along with its investor Tencent held investment discussions with Zomato before the food-delivery company entered into an exclusivity agreement with Chinese ecommerce conglomerate Alibaba’s payments affiliate Ant Financial for capital infusion.
Seattle-based Amazon is said to have earlier given Zomato a term-sheet for an investment at a $600-million valuation before the discussions floundered over the food-delivery company’s estimated worth. Amazon’s investment talks with Swiggy last year weren’t successful either. The global ecommerce giant, which is also looking to expand its meal kit-delivery business in India, has most recently held early talks with cloud-kitchen startup Freshmenu for an investment, according to people aware of the development.
Paytm also held discussions with Swiggy for an investment earlier this year and now its largest shareholder, Ant Financial, is in talks to invest in Zomato. The Gurgaon-based food discovery and delivery company is expected to align more closely with Paytm as a payments platform if the Ant investment goes through even though it will continue to use all other payment modes, said one of the sources mentioned above.
As a part of these discussions, Ant Financial had also tried to push Zomato and Swiggy towards a merger deal with plans to invest in a combined entity, but that deal has beenstuck due to strategic and valuation differences, as ET reported last week.
All these discussions may not necessarily lead to deals, as all the companies mentioned above are involved in multiple discussions. Flipkart, Amazon India, Paytm, Zomato, Swiggy and Freshmenu did not reply to emails sent last week seeking comment on the multiple investment discussions.
The online food delivery market grew 150% year-on-year in 2016 with an estimated gross merchandise value (GMV) of $300 million in 2016, according to data from RedSeer.
Amazon India and Flipkart, set to lock horns in the grocery-delivery segment, are seeking to increase applications for their payment offerings — Amazon Pay and PhonePe, respectively — to take on market leader Paytm.
BUILDING ECOSYSTEM
Investors and entrepreneurs said the interest of Flipkart, Amazon and Paytm in the food-delivery space should be seen as attempt to build their hyper-local online commerce ecosystems. Amazon India and Flipkart also see grocery-delivery firm Bigbasket, in which Alibaba and Paytm Mall are close to finalising an investment, as a miss, they said.
Paytm is also said to be in advanced talks to acquire online coupon platforms Nearbuy and Little, and had also held discussions with online travel company Via which was finally bought by US-based Ebix.
“All of them have users to keep on the platform… Food is the next frequent-use case, more than grocery delivery,” said Revant Bhate, chief market officer and entrepreneur in residence at online restaurant Faasos.
India’s online food-delivery industry handles 12-13 million orders a month, more than doubling business since last year, according to industry executives. Zomato and Swiggy get foursix orders a month from frequent users, much higher than the one-two orders online retailers typically get from their active users.
The rush to diversify comes also as online retail in India is expected to grow at a slower pace than projected earlier. While online retailers started investing aggressively in 2014 and 2015, investment bank Morgan Stanley had projected the domestic market to reach $119 billion by 2020. But over the last two years, companies have discovered that the market will take time to grow beyond the top 20-30 million online shoppers as per capita income will take time to catch up.
India’s urban middle class, defined as those earning more than $11,000 a year, is much smaller at just 27 million working people as compared to China’s 157 million between 2002 and 2012, according to a report by Goldman Sachs last year.
“Today we are at a steady state environment where online retail growth is happening at 20-30%,” said Sanjot Malhi, who leads consumer investments at Matrix Partners India. “The underlying reason is that while internet penetration is expected to grow to 500 million by 2020, the current ecommerce proposition does not appeal equally to that entire base. The top 10-20 million customers behave a lot like those living in New York or San Francisco, which is why initial growth happened very quickly.”
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