Zomato may acquire dunzo: How much sense does it make?

There has been an intense competition unfolding in foodtech and aligned segments. To gain an upper hand over Zomato and scale beyond food, Swiggy had launched Swiggy Store that delivers virtually everything from neighbourhood stores. Toying with a similar idea, Zomato is also contemplating to make another such expansion.

However, instead of building on its own, it may acquire Google-backed dunzo. The task management app for executing errands is reportedly in talks with Ant Financial-backed Zomato for acquisition. According to a MoneyControl report, the duo are in advanced talks for the transaction.

This isn’t the first time dunzo has been engaged in conversation with potential acquirers. Previously, the Bengaluru-based firm had held several conversations with Zomato and Swiggy.

Entrackr had reached out to Kabeer Biswas, co-founder and CEO of dunzo a couple of times in the past three months regarding the company’s conversation with Zomato about the acquisition. However, on both occasions, he chuckled saying he heard that the conversations are with Swiggy.

Replying to the latest development, Biswas said that at this point zero comments about everything.

While the chances of deal fructifying are uncertain, what values it brings for Zomato is a relevant question. And, does Zomato require this acquisition of dunzo? Can’t it build a hyperlocal delivery platform on its own? We’ll try to analyse these three aspects.

Fight in foodtech has recently transgressed beyond food. Over the past six months, Swiggy forayed into microdelivery (via the acquisition of Suprdaily) and hyperlocal delivery (through Store). With the integration of these services, the gap of scale between Swiggy and Zomato was slated to widen.

Currently, dunzo is present in six cities, including Bengaluru, Hyderabad, and Gurugram. According to an industry estimate, it processes over two million transactions a month.

Zomato certainly would like to begin similar services to match Swiggy’s scale. In fact, this reduction in the gap becomes a necessity for the company if it wants to raise more capital.

Given that Alibaba’s Ele.Me started with food but later encompassed several delivery use cases like grocery and vegetables among several others, it would certainly push Zomato to explore more use cases for existing infra (aka fleet of delivery boy, traffic etc.)

Acquisition of dunzo would earn a quick scale for Zomato in no time. Importantly, dunzo is strong in Bengaluru which is the largest market for Swiggy. It would strengthen the operations of the Deepinder Goyal-led firm in the city.

So far, dunzo had raised over $30 million of risk capital from Google, Blume and several other VCs and angels. If Zomato would acquire it, it will have to at least shell out $45 to 50 million. Meanwhile, Zomato has been in talks of more funding and recently sold out UAE business to fight Swiggy on local turf.

Does Zomato have that appetite or the money to splurge $50 million on dunzo is a big question? The scope of this deal depends entirely on how much Zomato is able to raise from investors like Alibaba and (maybe) SoftBank. Although, SoftBank looks closer to invest in Swiggy as the company is reportedly in talks to acquire UberEats.

Since Zomato already has traffic, relevant audience base which drives about 30 to 33 million orders a month, it can also build its own vertical with less investment. This build v/s buy dichotomy does not make for an easy decision in the Zomato house.