Zomato Set To Acquire 9.3% Stake In Grofers, Applies For CCI Approval

Food delivery unicorn Zomato is set to acquire a minority stake of 9.3% in grocery delivery firm Grofers, which will likely value the latter at around $1 Bn. 

Zomato has now filed for approval with the competition commission of India (CCI) to acquire the stake in Grofers International Pte. Limited, according to a July 1 filing with the CCI.

The proposal includes a 9.3% stake purchase of Grofers’ three different registered entities including Grofers India Pvt Ltd (Grofers India), Grofers International Pte. Limited (Grofers International), and Hands on Trades Pvt Ltd (HoT).

Hands on Trades Pvt Ltd is a private company owned by Grofers that is engaged in the business of B2B wholesale trading with third party merchants, contract manufacturing of food products, grocery and other goods for the purpose of onward sale on a wholesale basis.

Interestingly, Zomato also operates in the B2B grocery space under its Hyperpure branding which supplies fresh produce to restaurants in India. At present, more than 2,280 restaurants use Hyperpure.

“The Notification Form is being filed in relation to the proposed acquisition by Zomato of approximately 9.3% stake in each of Grofers India and HoT along with certain rights in each of the Targets (Proposed Transaction). The Proposed Transaction falls under Section 5(a) of the Competition Act, 2002,” reads the notification filed on Thursday. 

Earlier multiple news reports suggested that Zomato has finalised an investment of $120 Mn into grocery delivery startup Grofers after talks of a possible merger between the two companies fell through earlier this year. 

Reports added that Grofers may hit a valuation of $1 Bn post this funding from Zomato. 

The potential investment comes a year after Zomato was said to be in talks to acquire Grofers. Speculation emerged in April 2020, soon after the lockdown was announced, but since then Grofers has invested heavily as home delivery demand for groceries skyrocketed. 

The proposed funding from Zomato also comes shortly after Grofers cofounder Saurabh Kumar exited from the startup after almost 8 years after cofounding it with Albinder Dhindsa.  In a statement on June 18, Grofers CEO Dhindsa said that Kumar will no longer be involved in day-to-day responsibilities at Grofers, but would instead continue to be a board member

Grofers was also said to be in talks with SoftBank for a fresh funding round. As per the most recent report, the company, which was expected to use the special purpose acquisition company or SPAC route to list on the Nasdaq stock exchange in the US.

Zomato’s potential investment in Grofers follows the company’s plans to go public this year. Zomato has also released its draft red herring prospectus in preparation for the public listing. The company entered the online grocery space and exited it after a brief experiment last year, Swiggy continues to scale up its online grocery presence with Instamart, its quick delivery service for essentials which is currently available in Gurugram and Bengaluru. 

Much like last year, the online grocery space is expected to grow this year as the second wave of the Covid-19 pandemic has again reinforced physical distancing norms and increased reliance on ecommerce platforms for food delivery. 

Companies such as Grofers are seeing a surge in demand as several Indian states have again imposed lockdowns to contain the spread of Covid-19. On April 20, Grofers CEO Albinder Dhindsa took to Twitter to reveal that there were more than 6 lakh shopping carts created on the company’s ecommerce platform, waiting to check out if PM Modi had announced a lockdown during his address to the nation that night. 

According to a recent RedSeer report titled, “Online Grocery: What Brands Need To Know“, the online grocery market in India, which had recorded $1.9 Bn GMV (gross merchandise value) in 2019, was expected to grow to $3 Bn GMV by the end of 2020. The growth was attributed to several factors but primarily the Covid-19 tailwinds for the segment. Online grocery stores witnessed a rise in demand while countrywide lockdown restrictions were in place.

The report said that the change in consumer behaviour amid the pandemic, resulting in an increased preference for online grocery, is likely to stick. This would help online grocery stores increase their share in the overall food and grocery market from 0.3% last year to 2.3% by 2024, as the segment grows at a CAGR of 57%.