In recent news in Europe — the largest deal so far in food delivery in the region has been closed by takeaway.com deciding to acquire the German businesses of Delivery Hero SE for approximately 930 million euros ($1 billion), ending an expensive rivalry in a country where both were competing for market share at the cost of profitability. Takeaway is valued at €2.5 billion.
Delivery Hero’s Germany businesses recorded 23 million orders, with gross merchandise value (“GMV”) of €462 million and revenues of €76 million
Five food delivery startups — HelloFresh, Delivery Hero, Deliveroo, Just Eat, and takeaway.com — raised a combined €3.1 billion ($3.5 billion) between 2001 and 2012 and now, in 2018, have a combined value of €21 billion. The first wave of European food tech companies has mostly focused on building technology and logistics platforms to deliver food to consumers. And while the plethora of new food e-commerce options across the globe has caused investor fatigue and failures, the five leading food delivery companies in Europe are now worth seven times more than their combined investment, an awesome feat!
Freeing up time from must-do chores to focus on more productive or recreational activities has always been the key driver of technological progress. Grocery shopping, meal planning and cooking are considered chores and receive a lot of organic demand.
With online penetration at roughly 1 percent, food and grocery delivery remain one of the largest markets still overwhelmingly offline, and its transition to online/mobile is bound to create a wealth of opportunities for entrepreneurs.
In the long run, services that provide convenience will win. With growing demand and variety of options ready to deliver food, healthy meal options, food prep, are bound to be the fastest-growing segment and eventually take market share from other ways of getting food delivered.
The Marketplace Model:
There are three types of models operating in the food delivery segment. Each one with its own advantage and set of disadvantages. Marketplace models are known to provide convenience to customers.
- Ordering only: The first to innovate in food delivery services like Delivery Hero, Grubhub & Just Eat provided only a platform to order focusing on the first leg of the food delivery chain. They act as a pure software layer that aggregates a fragmented offering of independent restaurants, which manage their own fleet of delivery.
They provide a platform for the restaurants to go online, get more orders and facilitate a easier way to get orders. This model is sustainable and scalable.
- Ordering & Delivering: In the second model, the service providers like Uber Eats, Door dash & Deliveroo bring extra traffic and orders to the restaurants, and also manage the delivery for them, through their fleet of independent delivery agents connected by an Uber-like mobile app.
They are both software and logistics companies and have a very significant amount of operational risks.These on-demand marketplaces are therefore not as easy to scale as the pure-software one, but benefit from stronger barriers to entry and scale advantage
- Meal delivery startups: this model opts for end-to-end integration of the process. Players like Sprig, Maple & Spoon rocket developed their own app through which consumers can order meals from a prefixed menu, delivered in their own fleet of agents within 15 minutes.
They are completely integrated model is therefore difficult to scale but successful as hyperlocal food delivery start-ups.
As they grow, on-demand marketplaces will accumulate droves of data about delivery routes, demand patterns, and food preparation methods, which will allow them to keep on optimizing their service. In the long run, this data is highly effective in developing algorithm based routes for a fleet of drones. This mode of delivery seems highly suitable for food delivery since the packages are light. Drones could help in delivering faster and reduce delivery costs. Thereby support increasing the market size.
These food delivery startups have also been responsible for a considerable number of acquisitions to expand and consolidate their positions and created a market which has returned 7x in Europe in the last 5 Years. Delivery Hero made 16 acquisitions, Just Eat made 12, and takeaway.com made seven and still counting.
Entrepreneurs are still creating new food delivery startups with latest innovations. As with all on-demand services, these developments will make living in dense urban areas evermore attractive. And as the largest offline sector moves online in the coming years, one thing is beyond doubt – extraordinary opportunities lie ahead.