Why Zomato Came To The Rescue Of Blinkit

The quick commerce company has reportedly laid off employees, shut many of its dark stores across the country, and delayed some vendor payments

By
You're reading Entrepreneur India, an international franchise of Entrepreneur Media.

Since yesterday, reports have been floating around on quick commerce startup Blinkit merging with online food aggregator and delivery platform Zomato. The  transaction  is  said  to  value  Blinkit  between $700 million and $800 million. Post this, the shares of the food delivery giant hit a new low of INR 75.55 on the BSE today.

Unsplash

According to reports, the deal will help Blinkit, which is facing a cash crunch. The company has reportedly laid off employees, shut many of its dark stores across the country, and delayed some vendor payments. The merger news comes at a time when the company has been looking at measures to reduce the burn rate.

Zomato will reportedly soon approach the Competition Commission of India for an approval for the merger.

Zomato's Interest in Quick Commerce

The food delivery giant has been bullish on quick commerce in India. "Quick commerce category offers a huge addressable market and is also very synergistic with our food delivery business in the long term giving us a right to win over standalone players," Zomato had earlier said, adding that it had made cash investments worth $225 million in the past year across three companies - Blinkit (erstwhile Grofers), Shiprocket and Magicpin – towards its objective of building out quick e-commerce in India.

It was after Zomato's $100 Mn investment in Grofers in August 2021 that the company rebranded to Blinkit. Notably, before this, in June, Saurabh Kumar, cofounder of Grofers left the company almost 8 years after setting it up along with Albinder Dhindsa.

Last week, Blinkit closed a fresh funding round of $100 Mn from Zomato. According to an ET report, in an internal note to Blinkit employees, Albinder Dhindsa, cofounder, Blinkit said, "We have closed our next fundraise ($100 million) and will have money coming into the bank over the next week. We have come a long way in the last eight months by transitioning the business to the largest instant commerce player in the space," Dhindsa's note read.

According to RedSeer management consulting, quick commerce is estimated to be a $30 Mn market in 2021 and is expected to grow up to 15x to reach $5 Bn in 2025. Zomato said that with $1.7 Bn cash in the bank, it would look to capitalize on the growth seen by Blinkit in the past year as quick commerce took center stage. In February 2022, Deepinder Goyal, founder, Zomato also sold his personal stake from Blinkit to Tiger Global, according to a news reported by Deal Street Asia.

The Quick Commerce Race

A popular concept in Europe, quick commerce as a business model has been finding more takers in India, thanks to the skyrocketing number of internet users and the popularity of online deliveries. Ola has kicked off 15-minute grocery delivery in Bengaluru, Swiggy's InstaMart service delivers in 15-30 minutes, Dunzo promises to deliver in 19 minutes in Bengaluru through Xpress Mart and BigBasket has the BB Express, which claims to deliver essentials within 60 minutes. We also have Amazon Fresh which has expanded to many cities this year and promises to deliver in 2 hours and Flipkart in 90 minutes under its Flipkart Quick service.

Like social commerce, quick or instant commerce is also a business model that has gained popularity after the pandemic. In Europe, approximately 5 out of 10 startups in the space were established in 2020. However, many investors are hesitant to fund the companies as the business model is yet to prove its worth. "Q-commerce is highly location-dependent. Breaking unit economics might be possible in some places and extremely challenging in others. It's about picking the right locations with high order density. However, that brings the model's scalability into question, especially when multiple companies compete for the same set of users concentrated in small geographies," said Padmaja Ruparel, co-founder, Indian Angel Network and founding partner, IAN Fund, told us in an earlier interview.