The e-commerce or the quick commerce market in India space has seen a huge revolution in recent years. Especially in the food and beverages sector i.e., the foodtech sector, the introduction of giants like Swiggy and Zomato has changed the face of the industry and also the consumption pattern of the ultimate consumers.
Also, this is an era of instant food delivery and instant grocery deliveries. Gone are the days when consumers used to visit their local Kirana stores and search for their necessities as well as wait in the long billing queues. This era is of getting things delivered to one’s place at their chosen time and convenience. There are many players in this segment that have tied up with local Kirana stores and also have huge warehouses that can cater to the needs of the ultimate consumers.
Zomato has taken a huge step in this direction and the new merger with Blinkit is said to give the food giant Swiggy tough competition in this market space.
Blinkit, formerly known as Grofers, has recently revamped itself to focus on an instant grocery delivery portal. It has gained huge success by catering to customers by providing them with groceries in 10 minute format. The medium delivery time of Blinkit is approximately 12 minutes.
A huge push towards this goal was through the $100 million investment by Zomato in August 2021. This investment provided Zomato with a 9.3% stake in Blinkit at a valuation of $1billion for the latter. The food aggregator will now further their investment in Blinkit through a merger (or more accurately an acquisition) backed by the strong response to the latter in the instant grocery delivery segment in the form of customer retention, increased order frequency, good customer feedback, etc.
What is a term sheet?
The Zomato-Blinkit merger is in the form of a term sheet that is signed by the companies. A term sheet is a more or less non-binding document that contains a few binding provisions. Such binding terms may include provisions relating to non-solicitation, confidentiality, exclusivity, risk exposure, the timing and the manner of receiving the proceeds, etc. The terms that can later pose a difficulty to renegotiate are usually negotiated in the term sheet. Therefore, it can be said that a term sheet lays the groundwork and the principal alignment of the parties in working or drafting the final acquisition.
What are the highlights of the merger?
Current position of Blinkit
- Zomato-Blinkit merger comes at a time when the latter is burning approximately $6-8 million each month and is also forced to lay off employees across major cities like Mumbai, Kolkata, and Hyderabad in various segments including riders, store managers, and pickers. These layoffs make up almost 5% of its total strength.
- Blinkit currently includes a ground staff of approximately 30000 employees and over 2,000 employees on their payroll while it also holds approximately 445 dark stores across 20 cities in the country.
- The company has scaled its operations to the tune of $450 million annual run-rate Gross Merchandise Value (GMV) and now has 100% of its business in the quick commerce business model.
Zomato investment and loan plan for Blinkit
- Zomato had aimed at investing $400 million over a period of 2 years in the quick commerce segment but that has not yet materialized.
- Zomato has also agreed to provide a loan (at the interest rate of 12%) to the tune of $150 million that will be disbursed in multiple tranches.
- The persistent market volatility and the cash-guzzling business model of Blinkit have reduced the valuation of this company which is estimated to be around approximately $700-$750 million amid proposed Zomato-Blinkit as against its earlier valuation of $1 billion.
Nature of merger
- The merger will be in the form of a share swap and in the ratio of 10:1.
- This will provide SoftBank Vision Fund with approximately 4%-5% stock in Zomato as Softbank holds a 40% stake in Blinkit.
Zomato’s Vs Swiggy
- It is important to note that Softbank holds a significant stake in Zomato’s archrival Swiggy and has invested $450 million in 2021.
- Swiggy has aimed to use approximately $700 million towards its Instamart section that targets grocery deliveries within 15-30 minutes time slots.
- The Zomato-Blinkit merger will help the former to compete directly with Swiggy in the quick commerce business through the huge network and success of Blinkit.
- Zomato had earlier taken a plunge in the grocery delivery business at the onset of the pandemic but had closed that segment once it bounced back on its food delivery front.
- The initial investment in Blinkit in August 2021 was in line with its long-term vision of entering the grocery delivery business as well as the quick commerce business and building a sound strategy for success in the same.
Zomato-Blinkit merger was a long-awaited one and has further reduced the number of players in the quick commerce space and foodtech sector. The space only has a few big names now that are competing for significant market share and the proposed merger is seen as providing Zomato the much-needed edge over its biggest rival Swiggy in the long term.
While the news of the merger is welcomed by market pundits and is termed as much-awaited, it has also resulted in a hit on the share price of Zomato and then jumping more than 2% on 16th March. Some experts believe that plunging into a cash-draining business model (which is the key drawback of quick commerce space) while still not making decent profits in their core segment, will put further pressure on the stocks of Zomato, and hence, investors are advised to use caution while investing in the same.
Yes. The Zomato-Blinkit merger is viewed as a lifesaver for the latter as the avenues of fresh capital and funding have seemed to dry up in the current year 2022. The merger will provide a form of bail-out to the company.
The proposed share swap ratio of the Zomato-Blinkit merger is 10:1 where shareholders of Blinkit will get 1 share of Zomato for every 10 shares held in Blinkit.
Yes. The merger of Zomato-Blinkit is valued at a reduced valuation of approximately $700 million to $750 million than its earlier valuation of approximately $1 billion.