Proof, if more were needed, that the food delivery market is piping hot came last month when two of the biggest European giants picked up tabs acquiring rivals totaling €1.143 billion.
The UK’s Just Eat feasted on Australia and New Zealand’s biggest player, Menulog, for some AUS$855 million (€608 million) — a price that values Menulog at 371 times EBITDA.
The figure topped the devouring, a few days earlier, by German’s biggest player, Delivery Hero, of Turkey’s Yemeksepeti.com — some $589 million (€535 million).
Rocket Internet-backed Delivery Hero had just eaten Kuwait-based Talabat for about €150 million in February. Meanwhile Delivery Hero’s German rival Foodpanda (also backed by Rocket) agreed to buy UAE-based 24h.ae.
According to a MarketLine report, by 2019, the European restaurants industry is forecast to have a value of $620.3 (€563.2) billion, an increase of 20.5% since 2014. According to an internal Rocket Internet document, €90 billion of that will be in takeaway food delivery.
That explains the race for market share, says David Buttress, group CEO of Just Eat. “Our strategy globally is to be the king in markets of scale,” he says. In a winner-takes-all market, being number two is “next to worthless.” More than 70%, or £114.1 million, of Just Eat’s revenues are from the UK.
He points to the Netherlands where Just East is number two. “The number one player grows by 30% year on year, makes high 50% profit margins, and is 7x to 10x bigger.
“Our Dutch position is basically flatlining, slightly declining. It cost us hundreds of thousands of pounds a year to be in that market. That is the reality of being number two.”
“The One Person In The Industry Who Really Understands — Oliver Samwer”
What’s happening is the consolidation of a highly-fragmented market, says Hussein Kanji, a partner at London-based venture firm Hoxton Ventures.“The big open question — that none of us know the answer to — is who is going to be the one that rolls up the world?”
“The one person in the industry who really understands this industry is Oliver [Samwer, CEO of Rocket Internet],” says Kanji.
A Rocket Internet presentation claims its consolidated group, called the Global Online Takeaway Group, operates in 71 countries and is leader in 58 of them, processing an annualized 84 million orders.
But if the big players are devouring smaller players how can new start-ups hope to compete? Not by delivering more of the same, but by extending the market. One such player is London-based Deliveroo, which landed a $25 million Series B investment round led by Accel Partners, with participation from Index Ventures, Hoxton Ventures and Hummingbird Ventures back in January.
While Deliveroo does deliver food to the home, according to Leonard Picardo, Director of Marketing and Corporate Relations, Deliveroo is going after a very different market from that of Just Eat and Delivery Hero. “The restaurants that they work with are limited to those who have their own delivery logistics,” he says — a fraction of the restaurant sector.
Deliveroo has its own teams of scooter-based drivers who will deliver food from any restaurant to consumers in what Picardo calls a “hyper-local” area. “Our drivers do very short journeys from restaurant to customer — typically within a few-kilometer radius of their location. We are not going to send food across London. It would be cold and take ages. Our average delivery time is 32 minutes.”
The company has already expanded out of London into seven other cities in the UK and has operations in Dublin, Paris and Berlin. Other cities are planned, says Picardo.
Game Changer? Or is it?
According to Kanji — an investor in Deliveroo — this is a game-changer. “The likes of Just Eat and Delivery Hero are basically competing with the local pizza house. Deliveroo is a food that you eat for dinner.
Others did not agree. Just Eat’s Buttress was dismissive. “We operate this model in Denmark and have done for 10 years. Why have we not deployed that logistics business, called Just Delivery in Denmark?
“Because it doesn’t scale. In our model business is concentrated on literally a few hours every evening in the week. It means, for example, in Copenhagen on a Saturday night we need 48 drivers and 48 vehicles, but on Monday through Thursday you need two. It means you have very inefficient use of capital.
After 10 years, with all our market position in Denmark, the reality is that our Just Delivery model in Denmark is 2% of our revenues and we make single-digit marginal margins on that area of the business.”
Melih Ödemiş, co-founder and CIO at Yemeksepeti.com agrees. “We looked at this model. There was a company called Waiters on Wheels in San Francisco in the 1990s.
Google And Uber Enter The Picture
“It [the model] can never scale up. Yemeksepeti is doing more than 100,000 orders every day. Without the logistics of the restaurants that is not doable. In order for them to compete with us, even take 10% of the business, it would require a huge network effect, which takes a lot of time and money. Imagine how many courier guys or bike guys you would have to employ in order to do that kind of scale. It is not possible.”
Rocket, however, is taking a more suck-it-and-see approach. “Our subsidiary Food Express is already offering delivery services from restaurants in Germany. We plan to expand into more countries,” said a spokesperson for Delivery Hero.
Two trends from the U.S. may cause Europe’s market leaders to raise an eyebrow. Firstly Google recently announced a deal with a number of U.S. players letting users order meals for delivery straight from the search results.
Secondly comes news that Uber is offering a 10-minute home delivery service, UberEATS, in New York and Chicago. Uber drivers pick up batches of orders in temperature-controlled bags from participating local restaurant. When a customer orders from the limited menu, the meal can delivered very quickly. Other companies, such as Maple and Arcade, are setting up in the same space.
If it does catch on expect to see it coming to a city in Europe.