Battle for bigger pie of food delivery space set to intensify

Entry of Ola and Uber, plans by Zomato and Swiggy to raise funds to fuel competition

Food tech firms have their work cut out in 2018, with cab aggregators Uber and Ola entering the food delivery space, taking their rivalry to a new level, and existing players Zomato and Swiggy planing to raise fresh funds by the first half of next year for further expansion.

According to sources, Zomato, the restaurant discovery, food order and delivery app — which has been warding off competition from Foodpanda and Swiggy for the longest time to be the top player in the sector — has been in talks with Ant Financial for raising the next round of funds for the past two months. 

The company, which is hoping to raise $200-$300 million from Chinese tech major Alibaba’s financial arm, is looking to close the deal by March. 

Its biggest rival, Swiggy, is also in talks with the SoftBank Group to raise close to $250 million, a deal that might materialise by next year.

Zomato, the sources said, was planning to speed up the talks. “They have been trying to raise funds for the past two years now. The Ant Financial talks are in an advanced stage, and Zomato hopes to close it (deal) soon. The money is important for the firm as they are trying to expand its logistics and delivery,” said a source close to the company.

Last year, Zomato had held discussions with Chinese web-services giant Baidu to raise $200 million, but they fell through. The shutdown of more than 20 food tech start-ups did not help its case either. Zomato was supposed to be Baidu’s first investment in India.

“Uber and Ola have the money, data on riders from their cab aggregation business as well as runners and cabs. Companies such as Zomato and Swiggy will have to get into some kind of alliances for further growth. If their talks with Ant Financial are on track, there could well be a tie-up with Paytm in the near future,” said Amarjeet Singh, partner, tax, KPMG India. 

Zomato, which was in the news in 2015 for laying off around 300 employees, shutting down regional centres, and missing financial targets in 2016, was the first food tech player to break-even in key markets. 

Surprisingly, the company tied up with Ola in July this year for a strategic partnership to offer a range of integrated exclusive offerings to their customers. 

Under the alliance, the two brought together their respective platforms and reach to co-create a comprehensive ecosystem for the customers of both service providers. 

Industry insiders say it could take about six months for Ola to get Foodpanda running smoothly and complete the onboarding process.

“Foodpanda has had some issues due to its customer satisfaction levels going down in the past few months. Ola would have to bring that customer confidence back. Merging a company takes time. Issues such as excess staff have to be dealt with. All this could take around six months,” said a source. “Zomato and Swiggy need to work fast, get the money, and start the expansion process,” the source added.

While both Ola and Foodpanda are keeping mum on the issue, sources within the company said there might soon be a few high-level exits as well as lay-offs in both the companies. Saurabh Kochhar, who was the CEO of Foodpanda India until recently and was instrumental in bringing back the food tech firm from the brink of a shutdown, has already decided to move on. Pranay Jivrajka, founding partner at Ola, has been appointed as interim CEO of this business unit.