Exclusive: Zomato and Grofers in talks for a potential merger

Online food delivery platform Zomato and e-grocery startup Grofers are in early-stage conversations for a potential merger, according to four people familiar with the matter. If the deal goes through, it will boost Zomato’s positioning against its arch-rival Swiggy, which has been ramping up its grocery delivery vertical. 

“The talks are at the company and founder level for now,” said one of the persons cited above, requesting anonymity. “If they get more concrete, it will move to the board level.”

The talks have been underway for about a month but have taken a back seat due to the prevailing Covid-19 crisis, added sources. To be sure, the talks continue to be at an early stage and may not materialize into a deal.

Investors of the both companies are also aware of the conversation but the deal will face several challenges because of Alibaba which is a common investor in Zomato and BigBasket. “Besides Alibaba, it won’t be easy for Grofers either to convince its investors including SoftBank and Tiger Global,” said the above-quoted person.

This development comes at a time when online grocery players such as Big Basket and Grofers have witnessed a tremendous jump in orders due to a Covid-19-induced nationwide lockdown. The lockdown has also led to a significant  drop in online food delivery orders. 

E-grocery has become so popular that at least more than 10 startups including Meesho, BharatPe and Box8 have recently forayed into the space. Even Swiggy has quickly expanded its grocery presence to 125 cities. Zomato, too, launched its grocery delivery service — Zomato Market — just recently.

“Grofers has been helping Zomato with grocery deliveries,” said another person familiar with the matter, requesting anonymity. “This partnership could potentially get extended.”

Grofers CEO Albinder Dhindsa declined to comment on the story. A Zomato spokesperson, however, said. “We have partnered with Grofers, along with various FMCG companies, local groceries stores and modern retail chains, to pilot our grocery delivery service. We are not aware of any other conversation with Grofers.”

A potential merger conversation between the two companies has also come just days after Alibaba led a $50 million round in BigBasket. Entrackr had exclusively reported the development earlier this month. 

Investors in the space, however, seem sceptical about a deal going through with Zomato and Grofers. 

“Zomato and Big Basket have Alibaba as a common investor,” said a venture capitalist at a top firm, requesting anonymity. “It doesn’t add up for Grofers and Zomato to merge.”

In fact, both Grofers and Big Basket have held multiple merger discussions in the past but none of them materialised. 

“It’s not a secret that Alibaba has not been happy with the performance of Big Basket. In fact, Grofers had come forward to talk about a merger but Alibaba backed out,” added the third source. He also requested to be anonymous.

While the talks are at a preliminary stage, if the deal goes through then SoftBank and Alibaba would join hands for the second time in India after Paytm. Alibaba invested in Paytm in 2014 while SoftBank joined the board of the Vijay Shekhar Sharma-led venture in 2017.