Zomato's Acquisition of BlinkIt
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Chapter 1: Introduction
As we switch to more digital means, individuals are increasingly attracted by Q-commerce businesses. India’s burgeoning urban population, increasing disposable income and demand for instant gratification, has therefore resulted in the growth of corporations such as Zomato and Blinkit, majorly seen in megacities such as Mumbai or New Delhi.
1.1: About Zomato
Zomato, founded in 2008, is a cooperation in the tertiary sector, as a restaurant aggregator and delivering food. Partnering with restaurants and delivery providers, its customer segments include users who want doorstep delivery of restaurant food and restaurants who aim to reach a larger audience. Zomato, today has a user base of 80 million users, in 10,000 cities.
1.2: About Blinkit
Blinkit, founded in 2013, also in the tertiary sector, has revolutionized the retail experience to being completely online, to receive goods such as groceries at the comfort of your doorstep as well, partnering with regional stores aiming to also expand their users. It delivers more than 125,000 orders every day. Previously, known as ‘Grofers’, it has flipped itself since the rebranding, being one of the most satisfactory service provider.
1.3: Rationale Behind the Decision
In 2022, Zomato acquired Blinkit for $568 million in an all-stock deal. As per the deal, shareholders of Blinkit will receive 1 Zomato share for every 10 Blinkit shares. The Covid-19 pandemic resulted in restaurants getting closed, essentially motivating the company to start its own e-commerce for groceries to curb the situation; Failure in that, led to Zomato acquiring Blinkit to rival Big Basket and Swiggy as well. Blinkit, on the other hand, facing a cash-crunch after a rebrand from ‘Grofers’ had to close dark stores and lay employees off, giving into Zomato’s offer. As per the Indian Tax Law, the shares received by the Blinkit’s shareholders are also free of Capital Gain Tax. Similarly, previously, Zomato had also acquired Uber Eats, to drive competition out and acquire a greater market ratio.
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Zomato, through the acquisition, added Blinkit’s online grocery service to their Business-to-Consumer service, in order to add a revenue stream for the consolidated business and gain market power over competitors such as Swiggy.
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Chapter 2: Methodology
Chapter 2.1: Sources Used
This research was majorly conducted through the help of secondary sources to be found on the internet, such as articles, reports, and YouTube videos. The websites, where I obtained articles and reports are Zomato, Statista, and Money Control, gave me a quantitative and qualitive impact of the acquisition.
Chapter 2.2: Tools Used
To analyse and evaluate Zomato’s decision to acquire Blinkit, I used qualitative tools such as the Ansoff Matrix that provided an assessment of the decision through the risk factors, followed by the use of Perceptual Map, allowing to visualise Blinkit’s position in the market; Descriptive Statistics, giving direct data about the financial growth; and multiple Ratios, that tell the changes in liquidity, market growth, and profitability. These tools help gain a detailed perspective after the acquisition.
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Chapter 3: Analysis and Evaluation
Chapter 3.1: Ansoff Matrix
Introduction
The Ansoff Matrix is an analytical tool which helps evaluate business decisions and market growth strategies, in context to the risk portfolio and potential return on investment, through the lens of market growth, customer loyalty, and revenue.
Zomato’s decision to acquire Blinkit can be assessed through various categories of the Ansoff Matrix Tool.
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Analysis and Evaluation
Primarily, the acquisition allowed Zomato to offer new products to an existing customer base, individuals who prefer doorstep delivery, exemplifying Product Development. Zomato, in addition to eating out, restaurant delivery, and business-to-business, has added grocery delivery to their product catalogue. The new product portfolio allowed risks to be spread, if demand for a good reduces, after adding yet another revenue stream; Previously, Zomato struggled when restaurants closed due to the pandemic. Zomato has leveraged its existing infrastructure to control overhead costs and cross-shared their dark stores and warehouses to meet wider customer demands. Zomato has leased their biggest warehouse in Bengaluru and plan to increase dark store count to 2000, till 2026. On the contrary, Zomato’s failure to follow Blinkit’s mission can induce a loss in demand and efforts to maintain more supplier-relations are needed.
Secondly, the acquisition also exemplified a scenario of related-diversification, since both companies were part of the Q-commerce business. Zomato entered a new market, adding e-commerce of groceries to their customer segments. Another revenue stream, helping diversify and mitigate the risk of solely depending on one market or product. Zomato leveraged the existing infrastructure, through a greater fleet of delivery-men and experienced synergies, helping to reduce cost and foster innovation. Zomato gained a higher market presence in India and penetrated international markets as well, as greater revenue streams through operations were experienced. Moreover, Zomato gained an economies of scale having more resources and labour, as seen the market share increased from 54%-57%, gaining an ability for extensive R&D as well. The GOV has also hiked since the acquisition, indicating an increase in confirmed transactions.
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However, though diversification seemed a great option for Zomato, it induced greater risks and costs. Primarily, differences in the community, vision, and mission could have deterred efforts from Blinkit’s or Zomato’s core, potentially inducing loss in demand. It could have lead to unforeseen risks that could impact both businesses- market changes and external factors such as internet outages, regulations on road and vehicles (as previously seen in the Indian market, during the odd-even law), or diminishing of e-commerce. Moreover, the company can experience diseconomies of scale by facing communication problems due to a larger work force, less managers for employees, and even clash of ideas between directors; According to the Indian Law, at least 75% of the merging company’s shareholders must become shareholders of the merged company.
It is important that Zomato, experiencing synergies keeps in mind of both the company’s mission and vision, to provide food to more customers and deliver quickly. They should focus on hiring more experienced managers, and providing employees with sufficient wage to reduce internal conflicts. In the future, they could also focus on an unrelated diversification.
To conclude, though the acquisition exemplified product development and related diversification, gaining multiple advantages of adding revenue streams and greater work force, they could also experience associating risks.
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Next, Descriptive Statistics will be used to measure the financial changes for Zomato, as an impact
Chapter 3.2: Perceptual Mapping
Introduction
Perceptual or Position mapping is a chart that visually helps compare a brand’s product against its competitors’. In the Indian Q-Commerce industry, price is homogenous amongst each brand to maintain a balance of profit margins and market share; Hence, the two relevant industry attributes are Delivery Time and Product Catalogue.
Perceptual Map of Q-Commerce in India
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Analysis and Evaluation
The above perceptual map tells us that Blinkit in 2024 (post-acquisition) is one of the fastest Q-commerce businesses through mean delivery time. One can infer, their fleet and infrastructure after the acquisition has improved, being the fastest business-to-consumer business for groceries. Their product catalogue of the goods they sell is also one of the highest. These two variables are two of the most crucial for a Q-commerce business pertaining to Indian consumers need, and Blinkit excelling in these, tells us about an advantage over other brands in the market.
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Lastly, profitability ratios such as Net Profit Margin, liquidity ratios such as Current Ratio, and Management Efficiency Ratios such as Interest Cover Ratio will be used, to see how Zomato’s financial health has increased or decreased.
Chapter 3.3: Ratios
Introduction
Ratio analysis helped to evaluate certain aspects of the business such as liquidity and profitability. An evaluation tells us whether there is an upward or downward trend.
Net Profit Margin (NPM)- The percentage of revenue after all expenses have been paid, shows the conversion of revenue into profit, after deducting all costs from revenue.
Net Loss to Net Profit
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Year
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Net Profit Margin
Mar’ 2024
2.9%
Mar’ 2023
-13.72 %
Mar’ 2022
-28.83 %
Zomato faced an increase in net profit due to increase in sales and turning taxes into subsidies. They experienced economies of scale by spreading the costs over a higher output, therefore increasing their ability to turn revenue into a profit. Stronger management and efficiency has helped turn a constant loss.
Current Ratio- A measure of liquidity, indicating ability to pay short-term obligations within 12 months.
Year
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Current Ratio
Mar’ 2024
1.78
Mar’ 2023
4.03
Mar’ 2022
13.53
This indicates Zomato’s short-term stability to pay off debt. The current ratio has decreased, telling us Zomato’s weakening liquidity, potential to solvency problem. However, it also indicates an efficient use of capital and investing in new opportunities. The reasons include higher short-term debt, higher inventory conversion, and investment in long-term assets that can sometimes hinder investors and high valuation.
Interest Cover Ratio- The measure of a company’s ability to pay interest on debt with gross profit.
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Year
Interest Cover Ratio
Mar’ 2024
5.04
Mar’ 2023
-19.83
Mar’ 2022
-100.733
Zomato has seen an increasing interest cover ratio, indicating higher financial stability to lower interest obligations. They have seen a profit in years to cover interest and not default, being granted more financial flexibility and profit after interest. The increase in interest can be attributes to more debt or bonds, which Zomato took on to fund operation for a higher demand.
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Chapter 4: Conclusion
To conclude this research, through various tools I explored the change in Zomato’s financial health after acquiring Blinkit. Primarily, through the Ansoff Matrix, we learn that Blinkit’s acquisition is based on a high-risk challenge; However, with a high reward, that provides a complimenting infrastructure and synergies to the decision. The use of Perceptual Mapping indicated that Blinkit is the market leader in terms of qualitative factors most fitted to Q-commerce. Descriptive Statistics were applied to measure the change in revenue, as a consequence. Through, its application we discovered, the growth change results in copious increase in revenue, fitted in comparison to an exponential model. The ratios, lastly, tell us that Zomato in years, has turned loss into a profit, being more financially stable; However, it should look for internal sources of finance because they face reduces liquidity, catalyst for bankruptcy.
To sum up, attaining the shares of Blinkit has been of benevolence for Zomato, through the success of advertising, deals, and synergies. A financial evolution has been observed showing higher profits, however it is rudimentary that Zomato looks ways to cut costs and be less at risk, in the case of failing to meet short-term obligations.
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Writers: Nakshatra Gupta
