Why the Food Tech battle will be a disaster
In Europe, they are named Foodora, Deliveroo, Take Eat Easy, among others. In the US, they are called SpoonRocket, Sprig, or DoorDash.
And now with UberEats and Amazon Prime Now entering the market, it is a fierce competition.
What do they have in common: they all fight and race to be the #1 app that delivers the best restaurant food to your door.
As a business model, they charge the user a $2,5 per delivery. They also take a commission from the restaurant.
On the paper, this looks promising with a market supposed to be worth $ 20 billions in 2019. Investors are all rushing to take a stake in these companies that raised more than $5,7B all together in 2015 only. It also deliver a great service to people making their life easier (personally I’m not a huge fan, I’d rather go out for diner or cook). Now, let’s deep dive into this market to further understand what’s coming next.
Last summer, Take Eat Easy, Belgium based company, has announced they will shut down. They filled for bankruptcy in July and they are now closed. They weren’t able to close their 3rd funding round despite their impressive growth (they claimed they were growing by 25% / month in the past year). The same happened to SpoonRocket, US based startup that shut down in March for the same reason.
“It’s been challenging raising capital given the market conditions. We were exploring different strategic options, but deals fell through last minute. With competitors like Sprig, it’s a challenging arena for us, given the amount of capital we raised. We raised about $13 million but were competing with services that have a little more capital.”Founder Hsiao, quote from Techcrunch article
On the other hand, UK based startup Deliveroo has announced a new funding round of $275 millions (for a total of $500M) in Aug 2016, which value the company close to $1B and joining the “unicorn” family. In the meantime, they have reported to hit “only” $130M revenue this year. (again, revenue is different than profit).
However, they are now facing competition with UberEats, who just launched in London and Paris, and the fast expansion of Delivery Hero / Foodora (Delivery Hero acquired 100% of Foodora stake but will operate under Foodora’s brand). To stay in the game, Foodora also raised in August $110M as a loan. Nonetheless, Manager Magazine reported that Delivery Hero CFO Emmanuel Thomassin called the loan “very expensive” in an internal email, and is asking employees to watch spending.
The question here is can theses companies be profitable one day and how many will be left over with huge loss and damage?
“We’ve been in that hyper, hyper growth phase. We still very much are in that stage but equally we’re focused on optimising the business now too, making sure that we can make money, which ultimately is something that every business has to do, unfortunately, but that is the reality”. Dan Warne, managing director for UK & Ireland at Deliveroo, for Business Insider
Dan Warne is simply showing how entrepreneurs have been taught to think by VC’s. First, they race for market shares, then they will validate if they can become profitable. What if they discover they can’t?
I am sure that google is extremely happy about the situation as in both cases a huge amount of money has been spent on their platform on different paid channels they offer.
If it was only this, but also it is almost impossible to make a choice between these 2 (Deliveroo and Foodora) as:
- they have the same website (Deliveroo recently launched a new version)
- they offer almost the same restaurants.
Eventually, some others at least are emerging in niche market by having their own homemade food deliver to you like Frichti, french based venture who raised $ 13,4M, or by offering a “uber like” food service where you get home cooked meals from your neighbors, like Josephine in San francisco, US. But again, you will find many competitors with similar website and service who also raised money.
It seems that the only differentiator will be cash to kill competition. That is the price to pay to remain in the market and figure out if potentially you generated value and a profitable business.