Germany-based Delivery Hero Group on Tuesday announced the sale of its Foodpanda India business to Ola in return for shares in the Indian ride-hailing app.

Ola, which is flush with funds after raising $1.1 billion in October from Chinese internet behemoth Tencent Holdings, has committed an investment of $200 million into Foodpanda.

The development, which came as a surprise to many analysts, is a strategic move by Ola to compete with arch-rival Uber’s food ordering and delivery business UberEats, which the US-based multinational launched in India this May. Ola’s initial foray into the food delivery business, with Ola Café, fizzled out in the first quarter of calendar year 2016 after a year of unsuccessful operations in Delhi, Mumbai, Bengaluru and Hyderabad.

Ola’s latest entry into the food delivery business is a good move, says Anil Kumar, founder CEO of research and consulting firm RedSeer. “A few years ago, the food tech market was all about discounts and strained margins. Today, commission rates to restaurant partners have stabilised at 18-20 per cent; customers are willing to pay extra for delivery during monsoons and peak time because they get access to varieties of food with on-time delivery. All this has contributed to food tech being the fastest growing market, registering 120-140 per cent growth annually, at a current GMV run rate of $750 million.” That Uber Eats has been able to deliver 10,000 orders a day only seven months after its India launch, as against Foodpanda’s 40,000 orders a day five years after it launched, may have inspired Ola to jump into the fray, added Kumar, who says Ola’s domain knowledge of hyper-local markets will be of help.

Operational profit

Like most ailing food tech companies, Foodpanda had also pruned its workforce by 300 people in 2015 in a bid to turn profitable. It registered an operational profit in transaction revenue last year. In an earlier interaction, Foodpanda CEO Saurabh Kocchar had told BusinessLine, the company aims for overall profitability by FY19, with high-margin, value-added products that push up its commissions to 35 per cent. At last count, Foodpanda attracted 10 million unique visitors a month. It offers menus from 15,000 restaurants across 100 cities in India on its app and Web site.

“Ola stands to gain from acquiring Foodpanda as it will acquire millions of new customers who it can cross-sell and up-sell in order to garner a larger slice of the customers’ wallet. ‘Travel’ and ‘Food’ constitute two of the biggest spends by customers. With this acquisition, Ola will entrench itself in another major spend area of a customer,” said Sanchit Vir Gogia, Chief Analyst, Greyhound Research.

However, Rajeev Banduni, CEO of GrowthEnabler, says instead of reacting to Uber Eats by acquiring Foodpanda, Ola must continue to create distinct competitive edges with products like Ola Auto and Cash payments.