Zomato may buy Grofers in all-stock deal amid buzz of possible merger

Zomato and Grofers are believed to have held preliminary talks over a potential merger according to sources, but a deal has not materialised because of the current coronavirus disease (Covid-19) pandemic.
 

Reports of a possible deal surfaced Tuesday, and sources confirmed that talks were held between high-level officials of the firms. However, these were preliminary talks and a deal may not go through.
 

“Their partnership in the grocery delivery segment with Zomato Market has worked well. This led to the two founders exploring the possibility of a merger, but then the situation changed with coronavirus,” said a person aware of the discussions.
 

Zomato entered the hyperlocal grocery delivery space with Zomato Market earlier this month, with doorstep delivery of groceries in Delhi, Punjab, and Kerala. In January, Zomato bought Uber’s food delivery business UberEats in an all stock deal for $206 million, as part of its plans to expand its presence in the country.

Sources said a merger could benefit both as Grofers’ private labels business would be a draw for Zomato, as well as its experience in the online grocery delivery space. Grofers CEO Albinder Dhindsa had said last year that the firm’s private label business was expected to reach 1,200 brands by 2020.
 

Meanwhile, Grofers has been looking to enter the business-to-business (B2B) grocery delivery market for some time now. Zomato, on the other hand, forayed into B2B grocery delivery with the acquisition of WOTU, which it rebranded as Hyperpure. It delivers grocery and fresh produce to restaurants.

The firms, however, denied that any such deal was in the works.
 

“We have partnered with Grofers, along with various FMCG (fast-moving consumer goods) companies, local groceries stores and modern retail chains, to pilot our grocery delivery service. We are not aware of any other conversation with Grofers,” said a spokesperson at Zomato.
 

“The news on the merger is pure speculation and completely untrue. Grofers is the country’s biggest online grocery retailer and has been growing at 2x every 6 months,” said a Grofers spokesperson.
 

E-grocery
 

The e-grocery space went through a period of churning in 2015, with several businesses — including Local Banya, PepperTap, AskMe Bazaar — shutting shop because of deep discounting and low margins. It has, however, picked up in the past few years, and become among the most sought-after segments.
 

Since the outbreak, malls and most other retail outlets have been shut, prompting e-commerce portals such as Amazon and Flipkart to strike deals with online grocery firms such as Bigbasket to deliver essentials. Added to this is the fact that delivery of grocery has been classified as essential, and there is a clear demand for these services.