Hyperlocal delivery start-up Grofers is in advanced talks to buy Bengaluru-based SpoonJoy, as the food ordering app struggles to raise money from new and existing investors, according to two people familiar with the development.
Grofers, run by Locodel Solutions Pvt. Ltd, is expected to sign a so-called acqui-hire deal with SpoonJoy, the two people said on condition of anonymity. Since acqui-hire is a deal done primarily to access expertise of the acquired firm’s staff, operations of SpoonJoy will be shut down once the deal is done.
“We are currently in discussions with SpoonJoy and hope to complete the transaction in the next few weeks,” confirmed Albinder Dhindsa, co-founder at Grofers.
SpoonJoy declined to comment.
As investor interest starts to ebb in the crowded food ordering sector, the market is expected to see more such consolidation or strategic investments.
Since the start of the year, investors have pumped $150 million into 20 food-ordering (and food-delivery) start-ups.
On Wednesday, Mint reported that food-tech start-up TinyOwl Technology Pvt. Ltd was cutting jobs and freezing expansion plans as the company faces delays in closing its next round of funding, three people familiar with the matter said.
Earlier this month, another food-tech start-up, Dazo, decided to shut shop barely a year after it started operations.
The acquisition of SpoonJoy is expected to largely be a stock deal with some component of cash being involved, according to one of the two people mentioned above. About 40 people from SpoonJoy are expected to join Grofers in the tech and operations departments.
Dhindsa clarified that the acquisition of SpoonJoy would not mean Grofers’s expansion into the food delivery space. “We are not looking at the food delivery business. Product and food delivery are not compatible businesses,” he said.
In the first week of October, SpoonJoy, run by Emvito Technologies Pvt. Ltd, said the company was scaling down operations in Bengaluru and shutting the business in Delhi.
SpoonJoy was launched in July 2014 by Manish Jethani, a former FashionandYou executive, along with his Indian Institute of Technology-Roorkee batchmates Sourabh Agarwal, Prateek Agrawal and Kanishk Tyagi.
The company is backed by Flipkart co-founders Sachin Bansal and Binny Bansal, Flipkart’s former chief people officer Mekin Maheshwari, Tracxn founder Abhishek Goyal and Sahil Barua, co-founder of an e-commerce logistics firm.
In May the company raised $1 million in a Series A funding round from SAIF Partners. The company, which started out as a subscription-only service for items such as fruits, salads and snacks, later expanded to on-demand food delivery and added lunch and dinner as categories. It worked out of six central kitchens in Bengaluru and the National Capital Region.
“The food-tech industry is challenging because of bad unit economics. The hyperlocal delivery companies are also losing money at the unit level. But, in the case of Grofers, they have a good amount of money in the bank to last them. So, the difference between Grofers and many of these food-tech companies is, barring say a Swiggy or a TinyOwl, that none of them has managed to raise significant capital, which they thought that they could. Hence we see such early consolidation,” said Rutvik Doshi, director at Inventus Capital Partners.
Mint reported in August that there are early signs of a slowdown and start-ups in overcrowded sectors will either fail to get higher valuations in their next rounds or not find fresh funds, leading to cost cuts and consolidation over the next one year.
However, food-tech companies will not disappear, analysts say, given the large market for home deliveries in large cities.
This article was first published on Livemint.com