The company said the discount in Blinkit’s valuation was due to macroeconomic factors.
Zomato’s board of directors on Friday approved the acquisition of quick commerce startup Blinkit (formerly Grofers) for Rs 4,447 crore ($570 million) in an all-stock deal.
During Saturday’s analyst and shareholder call, Zomato executives indicated that post-closing priorities would be customer and delivery fleet integration. Zomato may consider moving Blinkit to the Zomato app.
“We will be experimenting with different ways to integrate the two customer bases, or rather ensure that we are able to leverage Zomato’s customer base to grow the Blinkit business,” said Akshant Goyal, CFO of Zomato. “Once the transaction is finalized we will test these things and if it makes sense to actually have both brands in the same app then why not? So we have several ideas in our heads and we will experiment and see what works in the end. ”
Leveraging Zomato’s grocery delivery customer base for cross-selling quick commerce will be a big part of “realizing synergies,” he said.
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“Once the deal closes, we’ll start experimenting with various ideas we have and see which all come to fruition, including the Blinkit tab in the Zomato app.” As they say, experiment a lot and stick with what works. This remains our mission statement, Deepinder Goyal, founder of Zomato, wrote in a letter to shareholders on Friday.
Blinkit transformed into a unicorn last year after a $120 million funding round from Zomato and Tiger Global, valuing it at $1 billion. Zomato also invested $100 million in Blinkit when it was still known as Grofers before the food delivery company listed on Indian stock exchanges last year.
“If you compare the size of the company (Blinkit) today, it’s quite similar to the size of the company last year, although the format was different then and the growth prospects that could be argued about were different,” said Akshant Goyal, CFO by Zomato. “The discount you see is essentially in our heads adjusting to the new reality we are all living in today where valuations for all growth companies have been corrected.”
The transaction is subject to customary approvals, including 75% of shareholders voting on the decision. The transaction should be completed by early August, Zomato told BSE after its board meeting on Friday.
Zomato anticipates that both Blinkit’s audience and advertising revenue potential will be greater than that of its grocery delivery business. While Zomato and Blinkit’s audiences overlap, older users who are new to the meal delivery service are using Blinkit, CFO Goyal said.
“I think there will be a lot of user base overlap, but there will be a new demographic or new user base that will be a customer or a quick trade user, which may not be the case with grocery delivery,” he said .
In his letter, CEO Goyal said he would argue that ad revenue from quick trade would be higher than grocery delivery “given the much larger budgets for digital ad spend by consumer products and brands.”
Blinkit CEO Albinder Dhindsa said on the earnings call that the entire grocery segment, including fresh produce, accounts for 70% of total sales. The company improved its “take” rate from 7.5% in January to 14.5% in May 2022. The take rate is the commission that a marketplace charges for a transaction on its platform.
“We’ve had an increase in the commissions that we can charge because some areas were starting to have thresholds beyond which the volume allowed us to do that,” Dhindsa said.
“We have also seen an increase in advertising revenue as well as shipping costs paid by the customer. All of these three other factors contributed to the increase in the metric score.”
The company retained 60% of consumers from the value-oriented segment of its previous model.
“Most of the user waste we have over there is from areas where we became unusable after limiting our service to a 10-minute delivery,” he said.
After expanding to more than 450 dark stores dedicated to fulfilling orders, this has since been reduced to 400 due to limited traction and other issues. Of these, 200 work in partnership with local vendors. It plans to focus on the 15 cities it currently operates in and improve the business of those dark shops. Blinkit’s gross order value (GOV) is already around 63% of the GOV of Zomato’s grocery delivery in Gurugram, the company said.
The Blinkit purchase is expected to help Zomato, which has been bullish on fast trading, significantly strengthen its position in the lively and ultra-fast food delivery space. Rival Swiggy has pledged at least $700 million for its quick commerce business on Instamart. At the same time, the industry has also attracted other well-funded startups such as Zepto,
Retail-backed Dunzo and Tata-owned BigBasket.