Cab hailing firm Uber is reportedly selling Uber Eats, its food delivery service in India, to rival Swiggy. At first blush, it is just another deal in the food delivery space, a sector that has consolidated in the past couple of years. But a share-swap deal with Swiggy will still give it a stake in the fast-growing food delivery business and something to brag to investors while it prepares for an initial public offering.
Selling Uber Eats probably makes sense. Despite growing seven-fold between September and December 2018, Uber Eats lags the leaders by a large margin. According to a report by The Times of India, Swiggy delivered 8 lakh orders a day in December 2018, while the second largest Zomato was at 6.5 lakh. Latest entrant Uber Eats delivered just 1.5 lakh orders in December.
What the data shows is this: Uber Eats might have had its initial success, at a cost of discounts and heavy advertisements. But it is still far behind of top two food delivery firms.
Playing catch-up is also not going be easy. Swiggy and Zomato already have a massive head start. Take the former, for instance. Its core business is food delivery with a fleet of around 125,000 partners. In December, Swiggy raised $1 billion to support expansion and has been exploring entry into new segments, including grocery and daily essentials through Swiggy Stores. In the second half of 2018, it added 42 cities, and its gross merchandise value doubled.
Swiggy has already swallowed Scootsy, another player in the food delivery space. Now, acquiring Uber will allow it to leverage Uber’s technology infrastructure and network of 300,000 drivers to strengthen its delivery business.
Uber, which will get a 10 percent equity in Swiggy after the deal is consummated, will be poised to reap the benefits of a maturing business. Despite being a decade old in India, food delivery is mainly centred in the metro markets and restricted to around 4,000 PIN codes, while the overall online retailing industry reaches around 97 percent of 19,100 PIN codes in India. As the food delivery business takes off, Uber will still be a part-owner without the management headache.
In any case Uber’s core business is rides and not food delivery. There it is already engaged in a fierce competition with Ola. Ride hailing would require continuous management focus as it prepares for its IPO. Success in India is crucial for the share sale.
Here’s some facts why India is very important for Uber. During the past two years, the American cab-hailing firm that has been valued by bankers at around $120 billion has exited eight markets, including China. India, which currently accounts for 11 percent of its total number of trips globally, has already emerged as Uber’s “healthiest market” in terms of growth rates.
And, the company’s management has high hopes. Uber’s CEO Dara Khosrowshahi has reportedly said that the ride-hailing company’s aim is to increase the number of trips in India by 5-10 times over next 10 years. India is currently the third largest market for Uber, after the US and Brazil.
At the moment, Uber’s sole aim is to make its IPO successful and that is linked to how well it manages to sell the India growth story to the Street. A growing ride hailing business without the distractions of a food delivery business will allow it to do just that.
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