Food delivery: a winner-takes-all?

“But…is it a winner-takes-all type of market?”

I get this question a lot when discussing the online food delivery industry with investors, analysts and journalists.

Today is no different with the news of Take Eat Easy (TEE) completing its last delivery. As impressive as TEE’s growth numbers were, it was sadly doomed from the get-go. Founded in 2013 in Belgium, TEE joined an already crowded party with Deliveroo devouring market share in the UK already. Needless to say that the city on the birth certificate determined which player was going to prevail due to funding availability. Over the course of their lives, Deliveroo raised an astonishing $200M compared to a modest $19M for TEE.

You would already be tempted to answer yes to the initial question. However, one must not look at TEE to draw any conclusion. The lack of funding — which ultimately led them to pull the plug — is highly correlated with the lack of concrete competitive edge over Deliveroo. TEE created an online marketplace that offered a curated choice of high-ranked restaurants while also providing delivery services. I would not blame you for thinking you just read Deliveroo’s description.

What makes online food marketplaces a winner-takes-all market is network. The more restaurants you have, the more customers will choose you over competitors, the more restaurants will agree to partner with you and so on (although too much choice draws consumers into anxiety). However, unlike for most Internet businesses customer experience is highly impacted by one single feature — the food served. Deliveroo has achieved great network effects in multiple markets but it still does not control the most defining element for the customer experience in three ways:

1. Deliveroo knows what dishes from what restaurants are performing well but has no way of influencing the menus by adding or deleting items from them
2. By curating the choice of restaurants and providing an alternative to local curry houses and Chinese takeaways, Deliveroo has taken online restaurants that wouldn’t traditionally serve takeaway customers. Generally, their dishes are not optimised for delivery and the packaging is not high performing
3. Most restaurants struggle to cope with service volumes and only leverage Deliveroo to cover any spare capacity. Deliveroo has no control over the supply and requires many restaurants on the platform to match the increasing demand

Deliveroo has undoubtedly created a new segment in the market and followers have failed to compete with it. It has emerged as a market leader mostly thanks to a first-mover advantage. However, the real struggle for Deliveroo has only just begun with the launch of UberEATS in several of its markets.

You could easily draw a parallel between Deliveroo vs. TEE and UberEATS vs. Deliveroo:

• Firstly, Deliveroo ousted TEE thanks to 10x more funding available to conquer the market. Equally, Uber has deep pockets and history has taught us that it won’t stop until it will dominate the market
• Secondly, Deliveroo’s business model did not diverge much from TEE’s just as UberEATS competes with Deliveroo on similar grounds (the only difference at the moment being the poor choice of restaurants and heavily subsidised pricing for the first few months since launch)

Add to that the imminent and rumoured launch of the Amazon Restaurants service in London in September and you have the perfect recipe for a clash of the Titans.

Uber and Amazon will gain large market share thanks to their logistic capabilities which will enable higher performance of the delivery fleet and increase profitability — especially around driver utilisation, a key metric as outlined by the CEO of TEE today. To defend its position, Deliveroo will have to increase its focus on food quality and supply while securing as many exclusive agreements with restaurant partners as possible.

Online food marketplaces are just one segment of the food delivery industry, which includes full-stack players like Sprig, Maple and Pronto as well as software only companies like Just Eat, Seamless and Hungry House. These players will continue to exist and will adapt their business models — in most cases to partner with marketplaces and take advantage of their network effects.

Let’s finally get to the answer to the first question, which is the following: the winner-takes-all marketplace will have to offer the highest quality, the greatest selection, and the most affordable price. It is hard to say whether one player will be able to deliver on all three elements but here is some food for thought:

• You cannot offer the highest quality at the most affordable prices without controlling or influencing the supply of food
• You cannot offer the greatest selection of restaurants at the most affordable price without including both high-end and low-end options. However, that means diluting the brand of higher-end restaurants and making it harder to bring them on the platform

One of the most crowded markets in the UK is about to get more crowded and only time will tell who will prevail. As industry aficionado, I can only hope that competition will bring stronger products to the market, powered by new technologies and with a stronger focus on customer experience. However, funding availability will play a key role in crowning the winner-takes-all.