Update: Zomato has responded to our queries
Swiggy and Zomato have revived talks aimed at a merger, people connected with the development told *Tech2*, as the two largest food delivery startups in India contemplate cooperation over competition after cut-throat battles to gain market-share.
Key investors in both companies have held discussions in recent weeks about a possible merger, and the talks are still at a very early stage, sources said. Still, the investors are coming round to the view that combining forces is an attractive option, but the devil could be in the details.
"A potential merger is clearly a proposal that interests everyone," said a person directly connected with the discussions. "There are no timelines yet."
Swiggy counts Accel, Naspers and Tencent as its main investors, while Zomato has Infoedge Enterprises, Ant Financial and Sequoia as its marquee financial backers.
The food delivery business is a cash-guzzler, forcing companies to spend heavily on acquiring customers, adding restaurants to their apps, and maintaining delivery infrastructure. Zomato and Swiggy were estimated to be burning about $30 million every month till even six months ago. Cash burn is expected to go up as Amazon and Uber double down on the food delivery business with deeper discounts, better payments to delivery boys, and more commissions to restaurants.
Zomato, though, has been cutting back on expenses. Within the last few months it has laid off around 600 employees and reduced the amount of money it spends every month to $19 million, a source connected with the company said. "In the next six to eight months the operations should be profitable," this person said.
The Economic Times reported in November 2017 that Swiggy and Zomato were considering a merger, but apparently those talks did not result in fruition.
"No, we are not in talks with Swiggy for a merger or an acquisition," said a Zomato company spokesperson. Swiggy has yet to respond to our queries.
Even if the companies agree to a merger, they would have to contend with the gaze of the Competition Commission of India, given that Bengaluru-based Swiggy and Gurugram-based Zomato together control most of the market for online food delivery in India.
However, this is not a prospect that the companies are too concerned about. The thinking now is that the food-delivery business is no longer a two-horse race. Amazon is preparing to launch its service any time now, and Uber has shown keenness to invest further in Uber Eats.
"A potential merger doesn't sound as anti-competitive anymore," a source said.
On the other hand, Anil Kumar, CEO of Redseer, a consultancy for startups and new-economy companies, was not so sanguine.
"It will not go through CCI," he declared. "Anything they do will come under monopoly."
For the financial year ending March 2019, Zomato reported a loss of Rs 1,001.1 crore on revenue of Rs 1,397 crore, according to regulatory filings analysed by Paper.vc. Swiggy reported annual revenue during the year ending March 2018 of Rs 468 crore, and loss of Rs 397.3 crore. Swiggy is yet to file its annual revenue numbers with the Ministry of Company Affairs.
Swiggy is currently in talks with its existing investors, led by Naspers, to raise a fresh funding round of over $400 million at a valuation of $3.5 billion, another person familiar with the ongoing deliberations added.