Uber has sold its loss-making online food-ordering business in India to local rival Zomato in exchange for a 9.99 percent stake in the startup backed by China’s Ant Financial.
Since launching in India in 2017, Uber Eats has struggled to gain market share and is a distant third to Tencent Holdings backed Swiggy and Zomato. All three have spent heavily on deals and discounts to attract customers in a highly competitive market.
The deal will allow San Francisco-based Uber to cut its losses and yet keep a stake in a market expected to be worth $15 billion by 2023.
“For Uber, the deal means redefining competence,” independent brand consultant Harish Bijoor said. “It should stick to what its competence is, in terms of being an aggregator of cabs.”
Uber Eats’ India operations contributed just 3 percent of gross bookings for the business globally, while accounting for a quarter of its adjusted operating losses, Uber said. It did not say how much those losses were or disclose financial details of the deal.
Zomato, valued at around $3 billion after raising money from Ant this month, reported a loss of $294 million for the year ended March 2019. Swiggy made a loss of $330 million.
Uber, which has promised to be profitable at an operational level by the end of 2021, has been trying to sell the India Eats business for a year, three sources familiar with the talks told Reuters.
It earlier held talks with Swiggy for a similar deal but those fell through due to valuation and regulatory issues, two of them said.
Uber and Swiggy did not respond to requests for comment.
Zomato said in a blogpost buying the Eats operations would make it “the undisputed market leaders in the food delivery category in India”.
Uber Eats in India will discontinue operations and direct restaurants, delivery partners and users to the Zomato platform from Tuesday.
Zomato’s orders per month should go up by 10 million from the 38 million-40 million it was clocking before the deal, a source familiar with the deal said.
Still, the acquisition doesn’t guarantee that all Uber Eats customers will switch to Zomato. Online food delivery customers tend to favor companies offering the best deals, market research shows.
Uber Eats, which pulled out of South Korea earlier this year, said it will continue to operate in Bangladesh and Sri Lanka.
“India remains an exceptionally important market to Uber and we will continue to invest in growing our local Rides business,” said Dara Khosrowshahi, Uber’s chief executive officer.