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Industry Analysis / Tue 9 Aug 2016

How Deliveroo and UberEATS are changing the £9bn food delivery landscape

Let’s face it, we all love a takeaway, and the emergence of many food delivery service platforms means getting a takeaway in 2016 has never been easier.

The takeaway sector was worth an estimated £9bn to the UK economy in 2014, a figure that is set to grow massively with the development of already-established online delivery platforms and the emergence of new food tech companies.

Sites like Just Eat and takeaway.com have dominated the online food delivery space for over 10 years, but delivery-only firms like Deliveroo and UberEATS are now shaking things up.

Just last week, Deliveroo closed a $275m Series E funding round – their fourth round since January 2015 – showing there’s certainly strong investor appetite for their business model.

The rise of Deliveroo

Launched in February 2013, Deliveroo came from co-founder Will Shu’s move from New York and his dissatisfaction with the food delivery culture in London. This sparked the idea for a service focused on delivery experience and premium-quality food.

Deliveroo seeks to bridge the gap between restaurant and consumer, enabling food outlets that don’t offer their own delivery service to get their food to customers’ doors. Its revenue model is simple – it charges the customer for delivery, plus earns commission from restaurant partners.

Deliveroo wasn’t an overnight success, but having raised a total of $474.59m in funding via five rounds, the company now claims its userbase is increasing by 25% every month.

The firm is keen to innovate and has introduced several additional services, including alcohol delivery, express lunch and ‘RooBox’– an off-site kitchen initiative providing restaurants with additional kitchen spaces. RooBox ensures independent restaurants are supported when food delivery demand increases, by removing expensive overheads associated with opening a new restaurant.

Deliveroo now works with restaurants in Leeds, Liverpool, Birmingham and many more towns and cities across the UK, and also has a presence in other European countries. But it’s not stopping there, the firm used its $100m Series D funding last year to accelerate beyond Europe, and now also operates in 12 countries, including Australia and Dubai.

Competition

In June, the brains behind disruptive taxi app Uber launched UberEATS, pairing with restaurants to create a new food delivery platform to rival that of Deliveroo. Currently available in Zone 1 boroughs of London, the company hopes to expand to more UK locations in the near future.

UberEATS has experienced something of a rocky start in the UK, paying out a shed load in late delivery compensation – every time the firm makes a late delivery it gives the customer money off their next transaction.

Alex Czarnecki, UberEATS general manager, told Business Insider: “It’s no secret that when we launched London’s appetite for UberEATS surpassed our predictions, which is why for the first little while the average delivery time was 36 minutes.

“However, since launch we have quadrupled the number of couriers on the roads, and now the average delivery time is 28 minutes. We’re so confident in our network of couriers and restaurants partners that we’re increasing the promise so that orders up to £30 will now receive £30 off their next order if it takes longer than 30 minutes.”

When asked their thoughts on upcoming competitors like UberEATS, a spokesperson for Deliveroo said: “We welcome competition as it helps drive us to innovate and continue to provide the best service for our customers.

“We differentiate ourselves from other services through our passion and focus on great quality food. We’ve built strong relationships with thousands of fantastic restaurants internationally.”

It’s worth noting that UberEATS has already achieved success internationally, too, with its service operating in many US cities, plus in Australia, France, Canada and Singapore.

The established players

While Deliveroo claims it doesn’t see new entrants to the food delivery space as a threat, what about the other incumbents? Have their lives been made harder by the likes of Deliveroo and UberEATS?

Entrepreneur Jesper Buch founded Just Eat in Denmark in 2000, before moving to London in 2006 and setting up a team headed by sales director David Buttress, who is now the firm’s CEO.

“I knew the UK’s restaurant market well and could see that there was a great opportunity. There were tens of thousands of independent restaurants around the UK that did not have the resources to build a website or develop the technology to sell their food online,” said Buttress.

After three funding rounds reaching £55m and a total revenue of £247.6m last year, Just Eat, headquartered in the UK, now operates in 13 countries worldwide.

The CEO suggested he doesn’t see the likes of Deliveroo as much of a threat. He said:

“We do not believe that the economics of the delivery fleet model is viable long-term or appropriate for Just Eat’s broader national offer. We are a marketplace for the whole of the UK and can offer customers a wider range of choice including both independent and most-loved chains.”

Just Eat has the opportunity to gain more customers in the future. According to the company’s user statistics, 60% of takeaways are ordered over the phone, meaning there is an opportunity to encourage more people to order online or via an app, improving efficiency and turning more customers to technology to order food.

Buttress concluded: “Technology is at the heart of everything we do. We have hundreds of engineers working everyday to make the lives of our customers and restaurant partners easier.

“People are increasingly moving their lives online and that includes how they order food. They want wide choice and to be able to order from their own homes. Our technology has helped them do this. It also helps independent restaurants grow their businesses. This is how we can maintain our success.”

Into the future

Derya Lawrence, research analyst at Euromonitor International, noted that the likes of UberEATS and Deliveroo are disrupting the food delivery space in the same way Uber and Airbnb have disrupted the traditional business models of taxi firms and hotels.

The rise of such third party delivery companies is forcing restaurants that offer online ordering to innovate, with Dominos Pizza investing in their tech interfaces and mobile apps to make them as seamless as possible.

“Companies that are doing this successfully are seeing a strong growth in their mobile sales and this trend is expected to grow in the upcoming years,” Lawrence said.

He went on to say the number of food orders placed online is steadily increasing, accounting for 9% of the money spent in the consumer foodservice space in 2015, gaining almost half a percentage point over the previous year and almost a percentage point in share from 2013.

Recent tech advances have enabled a wider range of players from across the consumer foodservice market to offer online home delivery, with full-service restaurants (those that enable people to eat at their premises) seeing 118% growth in home delivery sales in 2015.

“As we become increasingly urbanised, and lead faster paced routines, foodservice delivery will continue to shift more in the direction of online. This is most likely to benefit third party delivery services thanks to the wide choice and ease of ordering that these companies offer,” said Lawrence.

He also believes a growing number of offices will turn to these services to order food in for their employees, opening up a whole new potential market.

“All of these changes are possible only through technological advances,” he said, concluding that tech will continue to be the driver of change in the food delivery space.

“Foodservice outlets are now at the mercy of third party delivery companies,” he concluded.

Additional reporting for this article was provided by Emily Spaven.