Zomato’s acquisition of BlinkIt and the dripping sweat involved

In one of our newsletters previously, we mentioned that BlinkIt was probably being acquired by Zomato, and it happened. The in-loss, 10-minute-delivery service is finally a part of Zomato now and it seems like the stock prices are not exactly a fan of the acquisition.

 

Before we dive into the repercussions of the acquisition, let’s talk about the reason behind the acquisition.

 

Zomato is a food-delivery service, not a grocery-delivery service. When it comes to food delivery, almost everybody in India thinks about Zomato first. But while Zomato was building their expensive business model with an aim of flawless service, competitors like Swiggy and Dunzo started building their businesses in the grocery delivery business.

 

For a while, Zomato has been trying to attempt to crack the grocery segment, especially after its immediate competitor, Swiggy made its way into the industry. Building its very own grocery-delivery business seemed hard, but acquiring one wasn’t.

 

In fact, a delivery peer waiting to be gobbled up, and a competitive threat were reasons enough for this decision. 

 

Now let’s talk about BlinkIt.

 

Previously known as Grofers, BlinkIt revamped its brand because of increasing competition and the lack of an edge in the market. Because of that, the rebranding happened with a promise of 10-minute deliveries. However, this also included the company laying off hundreds of employees and shutting down its dark stores.

 

While BlinkIt wasn’t seeing that much of a success, it still was able to operate throughout multiple Indian states.

 

Previously, Zomato was slightly hesitant about a $500 million equity in BlinkIt, which is why it settled with a $150 million investment in the struggling grocery-delivery service till at least things get better and the equity makes sense.

 

And eventually, BlinkIt agreed, which is why we witnessed BlinkIt being acquired by Zomato now.

 

Skipping the infamous history of grocery deliveries and Zomato, what does Zomato exactly plan to do with BlinkIt?

 

Well right now, it seems that the acquisition could have the following projections:

  • A dedicated grocery-delivering tab on the Zomato app
  • Integrated loyal program for groceries
  • Expand the grocery-delivery model to all the states where Zomato operates
  • Invest about ₹1800 Crore to fund the BlinkIt losses till FY23
  • Scale deliveries from dark stores

 

Yet the most important question still remains – Despite such a promising acquisition, why is the Zomato stock price plummeting?

 

Because of the acquisition, Zomato will issue 629 million more shares, which amounts to an equity stake of about 6.88 percent on a fully-diluted basis. The allotment price of each share is ₹70.76. And when Zomato got the approval on the acquisition on June 24, the prices on the board also started receding. An acquisition of ₹4447.48 crores was definitely reflective on the charts.

 

Right now, it seems that Zomato has big plans for this acquisition, which might also start being reflected in the share prices in the future. At the same time, Zomato also has to improvise itself in such a way that it’s not going to find itself in a tough spot because of the existing competition.

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