Zomato To Invest $100 Mn In Grofers To Back Grocery Delivery Ambitions

Food delivery giant Zomato may invest $100 Mn in online grocery startup Grofers after talks of a possible merger between the two fell through last year. 

IPO-bound Zomato’s investment is likely part of a larger financing round and may value the Gurugram-based online grocery firm at around $1 Bn, sources told ET, which first reported the development. 

“Zomato has ambitions in the grocery segment and wants to partner with a specialty grocery company rather than build something of its own…They want to stay focussed on the food business,” a source told the publication. 

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. 

Post that, 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, has shelved the plans of an initial public offering and will remain a private company. 

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. 

In a recent blog post, Grofers acknowledged that during the Covid-19 induced countrywide lockdown last year, the company had witnessed customers indulge in panic buying and hoarding of essentials as they had feared a shortage of supply in the near future. To address the same, this year, the company has introduced a backend ‘Surge’ algorithm. So, when the demand for a particular product increases within a particular geographic area, the backend algorithm is triggered to limit the quantity of that product that each user can purchase (within that geographic location) to prevent hoarding and to ensure more users are able to buy that product. “Our goal is to ensure we are able to fulfil everybody’s daily needs as seamlessly as possible,” read the blog post.

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%.