India's online food delivery market is showing immense potential and attracting huge investments. Ant Financial, the financial affiliate of e-commerce giant Alibaba, just finished its latest investment in India's food delivery app Zomato, amid the fierce competition in the field.
Zomato, one of the most prominent players in India, has raised $150 million from its existing investor Ant Financial, valuing the app at $3 billion. The investment is part of a more massive $500-million funding round that is likely to close in the next two months.
Ant Financial has bet on the startup for a while. In 2018, it had acquired a 14.7 percent stake in Zomato for $210 million and later increased its stake to 23 percent.
Analysts believe that the latest funding will help the Gurgaon-based startup to make ammunition as it fights against rival Swiggy, which raised $ 1 billion from existing supporters Naspers and China's on-demand delivery platform Meituan Dianping in 2018.
Moreover, as the most competitive archrival of Zomato, Swiggy is taking action to reload bullets. The company reportedly in talks with global investors to raise $500 million at a valuation of approximately $4 billion, The New Indian Express reported.
After crowding out other weaker competitors, currently, the two startups together account for about four-fifths of the market and claim to be in some 500 Indian cities each. According to data from market intelligence firm Kalagato, by December 2018, Swiggy held nearly half of the market share by transactional volume, while Zomato accounts for about 26%.
The online food delivery market of India is mainly driven by India's young population base, increasing digitization, growing penetration of smartphones, increasing disposable income of people in the region, a rising proportion of women in working population and adoption of aggressive marketing strategies by food startups.
Fueled by deep-pocketed Chinese investors, Zomato and Swiggy have burnt hundreds of millions of dollars scaling up their businesses and offering discounts of as much as 40 percent to get more Indians ordering meals online.
Although India's online food delivery market is expected to grow at over 16 percent annually to reach $17.02 billion by 2023, the companies continue to lose money on deliveries.
Zomato's revenue has increased in the financial year 2018-19, but its loss widened Rs 106 crore ($14.9 million) in the previous fiscal year to Rs 1,001 crore ($141 million). Similarly, Swiggy's net loss expanded from Rs 397 crore (55.9 million) to Rs 2,367 crore ($333.7 million).
Uber has fallen far behind them due to the ballooning costs of competition. The San Francisco-headquartered company has been in advanced stages of talks to divest its food delivery service Uber Eats in India to Zomato, TechCrunch reported on December 16, 2019.
Fighting for the Indian market is not only a battle between Zomato and Swiggy, but it may also mean competition between its supporters Alibaba and Meituan Dianping. Under the challenge of the latter, the domestic market share of Ele.me, Alibaba's food delivery platform, is being eroded. In 2019 Q2, Meituan's revenue increased by 44.2% to 12.8 billion RMB ($1.86 billion), which is twice as much as Ele.me.
Ant Financial's parent company, Alibaba, has a tradition of providing technical or management support to the companies it invests in. The e-commerce giant operates a technical team in Beijing to support New Delhi-based fintech company Paytm, which received $ 177 million from Alibaba in 2017, people familiar with the matter told PingWest.
When asked if Ant Financial would take the same approach as the parent company, a spokesperson for the unicorn declined to comment, saying Ant Financial is close to the listing, and details were inconvenient to disclose.
If Zomato can successfully achieve the acquisition deal with Uber, plus Ant Financial's generous financial and technical support, it may gradually catch up with Swiggy.
"There is a phase in which you focus on explosive growth, market-share gains and building a strong market position," Mohit Gupta, head of Zomato's food delivery business, said in an interview with Financial Times.
It is tough to stay rational in cash burn markets. Nonetheless, as the leader of China's food delivery sector, Meituan Dianping has turned a profit, which brings a promising sign for all of the participants in the space.