Mumbai: The board of online food delivery firm Zomato has approved the purchase of quick commerce company Blinkit, which was earlier known as Grofers. This deal has been done for Rs 4,447.48 crore.

In the information sent to the stock market, Zomato said that this deal will be done under the exchange of shares. The board of directors of the company in a meeting held on Friday approved the acquisition of 33,018 shares from the shareholders of Blinkit Commerce at a price of Rs 13.45 lakh per equity share.  

After the acquisition by Zomato, the Blinkit team and CEO Albinder Dhindsa will continue to run the company as an independent entity and app.

Zomato CEO Deepinder Goyal said, “We will explore ways in which Blinkit can benefit from Zomato’s large customer base (and vice versa in the long term). Post the deal closure, we are going to start experimenting with various ideas that we have and see which all bear fruit, including having the Blinkit tab on the Zomato app. As they say, experiment a lot and keep what works. This remains our guiding motto.”

The quick commerce segment in India is estimated to grow to $5 billion over the next three years, which is a 16x jump from the current size of $0.3 billion. Thus, the deal can be a game changer for quick commerce space!  

Let’s have a look at what, according to the industry experts, works in the favour after this deal and what works against!  

What works in favour?

Experts believe that the deal will lead to better utilisation of the delivery fleet for Zomato and also propel multiple orders per transit, which is a global norm for driving efficiency and bringing the delivery costs down. With this, the valuations of Zomato may inch up backed by this, as one can provide a separate valuation to this segment for now, given its strong growth prospects.

It may also help Zomato to be better placed versus peers who are only into Q commerce, as they have a ready delivery fleet and will also help them compete with players like Swiggy who have made a very serious foray into this segment via Instamart.

What works against?

AOV (average order value) for this segment may be extremely low, which in turn will limit margins and capability to charge a higher delivery fee as delivery charge is linked to AOV.

At the same time, AOV in this segment is low as this segment caters to buyers who would want products on an urgent basis; a customer may order 5-10 per cent of their monthly grocery requirements via this segment.

India as a market is still predominantly driven by local Kiraana outlets (general grocery stores), within the vicinity, which would generally drive more than 90 per cent of grocery requirements.

Moreover, industry experts think that Zomato will need to offer something very different in terms of user experience for Blinkit in order to compete with peers and scale up in this business segment. Further, this business model may not have a big potential in the smaller markets such as tier 2 and 3, as the demand for gourmet food is much lesser vs metros.

Meanwhile, the closing of the transaction is expected to happen in early August. The transaction is subject to shareholders’ and stock exchange approval.