🤝 When Zomato Met Blinkit
Zomato and Blinkit have announced a merger. Here's why the proposition makes sense. (Reading Time: 3 mins)
Nowadays, the business world has kind of become like Instagram. A trend enters the market and all the companies begin following it.
That's what happened with NFTs and the metaverse.
And another trend that is quickly taking over India is quick commerce and 10-minute deliveries. However, this trend has already begun causing problems for one of the first companies that adopted it: Blinkit.
The Q-Commerce Problem
The quick commerce trend began last year after a new startup Zepto started promising 10-minute deliveries. Around the same time, Swiggy also announced that it would start delivering groceries in 15-30 minutes.
Blinkit, which was then Grofers, saw that the quick commerce space was gaining momentum, so it jumped in on the trend.
It became so invested in this 10-minute delivery model that it changed its name as well. Grofers became Blinkit, which delivers in the blink of an eye.
This was all the FOMO (fear of missing out) that other companies needed.
So, soon Dunzo, Swiggy, JioMart and others all entered this space.
Tata's BigBasket and Flipkart are also planning to dive into quick commerce.
But these quick deliveries come at a massive cost.
It's not possible to deliver groceries straight from grocery stores to the customers in 10 minutes. This is why Domino's ended its 30-minute delivery promise (remember those ads?).
So, these quick commerce companies set up dark stores (warehouses stocked with groceries) to fulfil their promise.
Now, this is an additional expenditure that they are taking on at no extra profit.
In fact, companies are burning more cash than they would have if they stuck to normal deliveries.
Meanwhile, they can't alienate customers by charging them extra for fast deliveries.
Instead what they are trying to do right now is change customer behaviour.
Once they get used to fast deliveries, these companies may add delivery charges or subscription fees.
But the question is will they survive the cash burn phase to reach that point.
Blinkit has realised it may not be able to do so. Even investors are currently unwilling to fund its spending spree.
And the rebranding means now it has to make 10-minute deliveries by hook or by crook.
So, it had to shut down operations in some cities where it couldn't deliver in 10 minutes.
Plus, despite spending over Rs. 600 crores since November to expand its business it has only seen a 4% growth month-on-month since January.
So, its cash burn is still too big. So much so, that it has now had to shut down around 50 dark stores and lay off 5% of its workforce.
Now since investors won't give it any more money, the company sought debt from companies like Zomato.
But this debt offer has now turned into a merger option.
Zomato had already invested $120 million in the company last year, so it thought why not take this relationship further.
The merger will be a share swap deal, meaning that the two companies will give each other stake instead of cash.
However, the merger will value Blinkit at $700 million-$800 million, which is lower than its current billion-dollar valuation.
And to go through with the companies will need the permission of the Competition Commission of India.
Zomato's Play
But why is Zomato buying a sinking company?
Firstly, it puts it on equal footing with its main rival, Swiggy. They both will now have a quick commerce arm. In fact, Zomato may be at an advantage because Blinkit averages 190,000 orders daily whereas Swiggy Instamart was averaging 1,000 orders per day until last December.
Secondly, Zomato's business is also not profitable as of now. So, it is taking a page from Alibaba and Tencent and trying to make money by investing in up and coming startups. It has so far acquired an 8% stake in Shiprocket (Bigfoot Retail Solutions Pvt. Ltd) for $75 million; 16% stake in Magicpin (Samast Technologies Pvt Ltd) for $50 million; and also invested $50 million in Curefit.
This investment strategy also allows Zomato to leverage these companies' tech and not have to develop its own.
Blinkit on the other hand got a lifeline.
But this makes us wonder what will happen to other quick commerce startups like Dunzo and Zepto?
Will they manage to be successful or will they also go the Blinkit way?
Only time will tell.
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