Zomato's Blinkit deal to give Japanese investor SoftBank money in the bank

Zomato’s attempt to acquire quick commerce player Blinkit will come up for board approval on June 17. If the deal goes through, it will not only give Japanese investor SoftBank shares in Zomato, but also allow it to make some money from the investments it has made in Blinkit, said sources in the know.

If the board does give its nod, SoftBank will get about 4-5 per cent stake in the listed entity. Sof­tBank is the largest shareholder in Blinkit, with 44 per cent stake.

“So far, the company has invested about $300 million. With this, it may end up making around $325-330 million, depending on where the share price of Zomato goes,” said one of the sources in the know.

This also means that SoftBank will have investments in India’s two largest food aggregator platforms —Swiggy and Zomato.

“The Zomato investment is just a shareholder with no special rights like they have in Swiggy. SoftBank generally does not exit its investments, but this share swap will give it something tangible,” said another source.

The bigger question on everyone’s mind is how Deepinder Goyal will justify shareholders on the transaction. It was Zomato’s $100 million that took Blinkit’s valuation to $1 billion. Earlier this year, the company also extended a loan of $150 million to Blinkit.

At a recent earnings call, Zomato said for any future merger and acquisition (M&A), it will be value conscious.

“We don’t want to overpay. We haven’t done that in the past for any deal we have done. We will follow the same principles. We have a strong and independent board, and we have a strong governance process for any M&A, not just on valuation,” said the company in the call.

Is quick commerce losing steam?

Albinder Dhindsa, founder of quick commerce delivery start-up Blinkit, in an earlier interview to Business Standard had said: “The players doing quick del­i­veries in the US and Europe pla­yed a part in convincing us to ex­periment with the idea.”

If that is the logic, he may have to rethink the Blinkit proposition, as globally quick commerce players are facing pressure. Take the instance of Berlin-based on-demand delivery start-up Gorillas. It became the fastest to achieve unicorn status in Europe within nine months of launch. According to a report in retaildetail.eu, the company is shifting its focus from growth to profitability and slashing 300 jobs.

In the US, which is where several Indian entrepreneurs take inspiration from, Gopuff, which had listing plans at a valuation of $15 billion in January, has put its plans on hold, said reports. Simil­arly, DoorDash’s stock performance has left investors in a tizzy.

In India, Zepto, which raised the tempo in the quick commerce segment, raised $200 million in Series D that valued it at $900 million early last month, saw fund infusions coming from existing investors Y Combinator Continuity and other existing investors — Nexus Venture Partners, Glade Brook Capital, and Lachy Groom. The only new investor was Kaiser Permanente.

Industry sources and investors that were approached said the reason for the slow momentum among quick commerce players is fund squeeze.

“A majority of quick commerce players were focusing on growth at the cost of profitability. But with fund-raise becoming difficult with cheap money out of the way, founders have to see the reality,” said an investor.

Arvind Singhal, chairman and managing director, Technopak Advisors, questions the business model in quick commerce.

“The Indian grocery and food market is a $550-billion segment. Of this, 60 per cent purchase is of items like cereals, pulses, spices, oils, etc, which is a planned expense. The next big item is personal hygiene care. You will purchase these in advance; these are not impulse buying. According to our study, the impulse-buying market in India is a $3-4-billion opportunity. More importantly, the ticket size of these purchases is between Rs 100 and Rs 200. How will anyone make margins?” he asks.

The verdict is yet to be out on the quick commerce model, but the space is in for some big pivots.