Why doesn’t Ola want to be just a taxi company?

Cabs to carbs.
Cabs to carbs.
Image: Reuters/Abhishek N. Chinnappa
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India’s homegrown taxi giant Ola does not want to stop at ferrying people around—and has just made its intentions clearer than ever before.

On Dec. 19, the Bengaluru-based company said it has acquired food delivery firm Foodpanda’s India business in an all-stock deal. Ola will invest $200 million (Rs1,282 crore) into Foodpanda India.

“Foodpanda India, with all its 800-plus employees, will be a part of Ola going forward,” Ola’s co-founder and CEO, Bhavish Aggarwal, told the company’s employees in an email, a copy of which is with Quartz. ”In the crowded food-ordering and delivery industry, Foodpanda India stands out as an efficient and profit-focused business. By coming together, we will go a long way in leveraging our collective strengths to better and grow our footprint in India’s digital economy.”

This deal marks Ola’s second attempt at food delivery. In 2015, the company had launched Ola Cafe in four metro cities, but the business was shut down within a year due to an unimpressive performance. Ola’s attempts haven’t been limited to food either. It had tried hyperlocal grocery delivery with Ola Store, which also shut shop within its first year.

So, why is a company that’s among the top-two players in its core business constantly trying to diversify?

Ola’s food fetish

The main motivation for the Foodpanda acquisition is to compete with American rival Uber’s food- delivery service, analysts said.

UberEATS, a meal-ordering and delivery app owned by the San Francisco-based ride-hailing company, was launched in India in May this year and has so far expanded to six cities. And Foodpanda gives Ola access to the food delivery firm’s network of over 15,000 restaurants across more than 100 Indian cities, a company release said.

“Food delivery is one of the fastest-growing segments in the internet business space,” said Jaspal Singh, a partner at research and advisory firm Valoriser Consultants. “Foodpanda already has a brand name, delivery network, and existing restaurant partners, so Ola will not need to develop the business from scratch.”

But Foodpanda hasn’t been among the frontrunners in the food-delivery business.

In January 2016, The Times of India newspaper reported that the company was facing allegations of fraud and discrepancies in its operations. Its investor, Rocket Internet, was reportedly scouting for buyers at a valuation of less than $15 million. The company, though, had vehemently denied any such plans.

Meanwhile, the food delivery segment in India has itself been plagued by shutdowns, layoffs, and downsizing. It has also seen casualties like TinyOwl, Dazo, and Eatlo. Even bigger players like Swiggy and Zomato have had to take drastic measures to survive, including laying off hundreds of employees.

Some analysts that spoke to Quartz voiced concerns over Ola’s decision to enter a troubled sector and about its chances of losing focus on the core business. Ola, however, has no plans to mix the two businesses.

Synergies and integration

After the acquisition, Foodpanda will continue to operate as a separate entity, Aggarwal said in his letter. “Foodpanda will be able to leverage a lot of Ola’s strengths across customer reach of more than 100 million Indian customers and logistics capabilities and technology, giving a structural advantage to Foodpanda India over its peers,” he said.

One immediate benefit that Ola could derive from this acquisition is for its digital payments business, Ola Money.

The payments services, launched primarily for Ola ride-hailers, was expanded to include several other merchants in 2015. Competing with larger rivals like Paytm and Mobikwik, Ola has been trying to bring more merchants to transact on Ola Money. Currently, a customer can use Ola Money to pay at Domino’s, Pizza Hut, Cafe Coffee Day, BookMyShow, and OYO Rooms, among others. Now, Ola is likely to integrate Ola Money with Foodpanda, too.

Besides, it may be able to utilise its bike-rental service, Ola Bikes, and bicycle-rental service, Ola Pedal, to make food deliveries, Singh of Valoriser Consultants said.

Yet, food delivery does not have many direct synergies with Ola’s core taxi-booking business. Services like grocery delivery and logistics, which Ola earlier experimented with, can be easily integrated with taxi-hailing in the long run as the company could use its existing fleets for these businesses. This could help Ola improve vehicle utilisation.

“When they bought TaxiForSure (in 2015), it made complete sense because it was an allied business and it led to lesser competition. But was Foodpanda the best use of their money? Only time will tell,” Yugal Joshi, practice director at Everest Group, said.

Have money, will spend

Nonetheless, the Foodpanda acquisition hints at the beginning of the highly-anticipated consolidation of Indian internet businesses.

After a lull of nearly two years, Indian unicorns benefited from a funding spree during 2017. E-commerce major Flipkart raised around $4 billion in two tranches, while digital payments unicorn Paytm raised $1.4 billion in May. Ola also raised $1.8 billion during the year.

And with growth in their existing businesses slowing, it is widely expected that these companies will use this money to give their earnings an inorganic boost. There has been much talk of some of India’s biggest startups buying out companies in their non-core businesses like hyperlocal services, insurance and wealth management, and food delivery.

Yet, according to Everest Group’s Joshi, Ola’s attempt to use its money for things other than just offering discounts to its users, which is what most Indian consumer-focused unicorns have spent a major chunk of their cash on, hints that the industry is coming of age.