Food delivery app Zomato is in talks to invest around $100 million in e-grocer Grofers, two people in the know told ET, after discussions of a possible merger between the two fell through last year at the onset of the Covid-19 pandemic.
Zomato’s investment is likely part of a larger financing round and may value the Gurugram-based online grocery firm at around $1 billion, sources said. This time the talks have centred around a capital infusion, unlike last year when Zomato would have likely acquired Grofers in an all-stock deal.
Grofers — which was looking to list on the tech-heavy Nasdaq in the US through a Cantor Fitzgerald blank check firm, as reported first by ET on February 24 — is expected to scrap the IPO plan and continue to remain private, said another person in the know.
SoftBank Vision Fund (SVF), the largest shareholder in Grofers with an about 50% stake, was earlier steering conversations around its initial public offering via a special purpose acquisition company (SPAC).
Grofers said in an emailed response to ET, “We are in regular touch with the investor ecosystem and are seeing a lot of inbound interest given grocery is an essential need and a high growth segment. Given the dynamic business environment, there will always be room for speculation, but our team is focused on serving more families.”
The Grofers spokesperson added that the company is witnessing a year-on-year growth of around 110%.
Zomato did not comment till press time Thursday.
Zomato’s investment in Grofers comes at a time when SVF is close to deploying $450 million in rival Swiggy, ET had reported on April 15, largely to help the restaurant aggregator expand its services beyond food delivery.
Swiggy has been pushing its quick grocery delivery service Instamart and daily essentials delivery platform Supr Daily in an attempt to diversify.
SoftBank with a successful DoorDash IPO in the US under its belt and GoPuff’s valuation soaring to $8.9 billion has seen the on-demand delivery category clock good returns for its portfolio firms globally.
Zomato, which experimented with grocery delivery during the initial months of the pandemic, discontinued its services under Zomato Market saying it was not core to its business. “We did grocery because the food delivery business was gone during the lockdown. For 3-6 months, it worked really well and helped us get through the crisis. Eventually, it didn’t make sense…,” Deepinder Goyal, cofounder and CEO of Zomato, told ET in an interview in March this year.
On April 28, Zomato filed its IPO prospectus with the Securities and Exchange Board of India, seeking to raise more than $1 billion through a combination of fresh equity and sale of existing shares.
Zomato said it intends to garner Rs 8,250 crore (about $1.1 billion) through its public listing.
The Deepinder Goyal-led company had stated in its IPO filing that acquisitions will be a key strategy for the firm. While grocery is a low-margin business, Zomato’s investment in Grofers may help it scale the vertical quickly by combining forces in a highly competitive sector which has large players like Amazon, BigBasket-Tata, Flipkart and Reliance JioMart, with deep pockets. Now, it will also take on Swiggy which has unveiled a strategy to go big on grocery.
Competition hots up
As for Grofers, the latest investment round will help it build a much-needed war chest in a market seeing increased competition and a massive surge in demand on the back of the Covid-19 second wave.
Competition in the segment has turned fierce, most recently with the Competition Commission of India approving Tata Sons’ proposal to acquire a majority stake in grocery e-tailer BigBasket, the leader in the segment.
“Now that the company has decided to shelve its IPO, it is looking to mop up around $200 million,” another person in the know said.
ET could not immediately ascertain the other investors that are likely to join Zomato in Grofers’ funding round.
The online grocer had been eyeing between $400 million and $500 million through a listing on the tech-heavy Nasdaq, which was scheduled for this month at a possible valuation of more than $1 billion, ET had reported.
Grofers would have merged with one of Cantor Fitzgerald’s SPAC vehicles. The New York-based non-bank is led by the India-born former co-chief executive of Deutsche Bank, Anshu Jain who is its president.
Grofers recently said it is currently at a run rate of $1 billion in annual gross merchandise value (GMV).
For financial year 2020, it registered revenue from operations of Rs 2,289 crore on Rs 1,181 crore in losses, news portal Entrackr had reported.
Run rate is a term used to measure the financial performance of a company if its current results were to sustain in future as well.
BigBasket has said that it crossed the $1 billion annual revenue run rate mark in September last year, buoyed by growing demand for online groceries due to the pandemic.
BigBasket’s business-to-business arm Supermarket Grocery Supplies recorded revenue of Rs 3,322 crore on a loss of Rs 611 crore for financial year 2019-20, regulatory documents sourced from business intelligence platform Paper.vc showed.
Innovative Retail Concepts, which operates BigBasket’s online retail business, posted revenue of Rs 3,418 crore on losses of Rs 424.3 crore in the same period.