The Indian quick commerce sector is in for a ride as food delivery company Zomato is finally set to acquire Blinkit (erstwhile Grofers), the quick commerce company, for $568.1 million. Zomato has been an investor in Blinkit and the acquisition was almost inevitable.

Blinkit was originally founded as grocery delivery platform Grofers, back in 2013. Last year, the company announced its rebrand to Blinkit in order to indicate its focus on the quick commerce market in India, which was seeing intensified competition at that time.

Currently however, Blinkit has been struggling with the quick commerce business model not finding any sustenance across the board, across all companies. Being acquired by Zomato, which has been one of its investors since last August, may thus end up being one of the few good news Blinkit has had this year.

Going forward, both Blinkit and Zomato will continue to operate as different brands as well as apps. The acquisition however, is at nearly half the valuation that Blinkit had achieved in its last private equity round.

“This acquisition is in line with our strategy of investing in the quick commerce business,” Zomato said. This will help it penetrate deeper into the quick commerce space, it added.

“Pursuant to Regulation 29 of Listing Regulations, as amended, this is to inform you that a meeting of the board of directors of Zomato Limited (“the Company”) is scheduled to be held on Friday, June 24, 2022, to discuss a potential acquisition transaction by the Company, the consideration for which may be discharged through the issuance of equity shares of the Company by way of a preferential issue,” it said in a filing with the National Stock Exchange.

While Blinkit has been struggling in recent times, it is no secret that Zomato has been eyeing the lucrative quick commerce market. The market has seen several high-profile players such as Swiggy, Reliance Industries-backed Dunzo, Tata-backed BigBasket and Zepto bet big in the market.

The acquisition will help Zomato to extend its food delivery business, and in turn will help it not only increase its addressable market and bring down the cost of delivery but also increase the utilization of its hyperlocal delivery fleet. Additionally, it could help Zomato increase the customer wallet share spent on its platform and drive higher frequency and engagement from its customers.

While the amount may seem like much, Zomato’s offer is still far lesser (43%) than Blinkit’s valuation at the time of its entry into the unicorn club. Zomato had earlier been in talks with Blinkit to acquire it in a share-swap deal at a value of $700 million.

“Quick commerce has been our stated strategic priority since the last one year. We have seen this industry grow rapidly both in India and globally, as customers have found great value in quick delivery of groceries and other essentials,” said Zomato CEO Deepinder Goyal.

“This business is also synergistic with our core food business, giving Zomato the right to win in the long-term… This foray into the next big category is timely as our existing food business is steadily growing towards profitability,” he added.

In a blog post, Goyal revealed that the food delivery giant has grown at a CAGR of 86% in the last 4 years to clock adjusted revenue of $710 million, while its adjusted EBITDA margin has improved from (153%) in FY19 to (18%) in FY22.