Food delivery market for newbies
How big is the food delivery market and how can one make a fortune on it?
Home cooking will soon become as old-fashioned, as home tailoring already is. At least that’s a general concept investment bank UBS expressed in it’s the latest report “Is the Kitchen Dead?”. The second part of the prediction is that fast breakfast or a cup of tea are at the top of the culinary art peaks for millennials, everything else will soon be ordered online.
It is difficult to say with certainty whether the changes in the food market will take such a dramatic turn, but even now some significant shifts are already noticeable. The welfare of urban citizens is growing as they have increasingly less time for picking food products and cooking, a trend that’s driving up the popularity of food delivery.
Global Food Delivery Market
The global food delivery market amounts to approximately USD 100 billion, which is 1% of the total food market, or 4% of the restaurant market. Today, 90% of all food delivery is done directly from the restaurant by the restaurant’s own courier. However, nearly half of such orders today are placed online (through websites or mobile applications). The share of online orders is predicted to grow.
The UBS report predicts a 20–30% growth a year in the global food delivery market, to USD 365 billion by 2030. There are three key reasons behind this growth:
- millennials order food delivery three times more often than their parents (and as the wealth of this generation grows, the trend will become even more noticeable);
- the industry is growing due to the marketing efforts of big players (such as JustEat, DeliveryHero, Takeaway.com, Deliveroo, UberEats, Postmates, GoJek, Rappi, and Glovo);
- the market penetration of the mobile Internet and smartphones is on the rise, and mobile delivery applications are among the top most downloaded ones on the key markets.
Food Delivery Market in Europe
The leaders in the food delivery sector are:
- Just Eat (the number one service in the UK, Italy, Spain, Portugal, Denmark, and France)
- Delivery Hero (the market leader in MENA)
- Takeaway (the number one service in Benelux and Poland, a strong first position in Germany)
- Deliveroo (the premium segment leader, holds a strong 1st position in the UK)
- UberEats (the leader in capitals and major cities: Amsterdam, Bordeaux, Brussels, London, Lyon, Madrid, Manchester, Milan, Paris, Stockholm, Vienna, and Warsaw)
- Glovo (116 cities in Southern and Eastern Europe, Latam and Africa)
How the Food Delivery Business Is Capitalized
There are two categories of businesses operating in the food delivery sector: aggregators and services with their own logistics. For the end customer, there is no price difference when ordering through an aggregator, while the service receives a commission from the restaurant. Usually, the service fee is up to 10 percent of the order amount.
Services with delivery capabilities offer a wider choice of restaurants and foods to customers — from fast food to premium restaurants that traditionally do not deliver food to homes. Despite the higher costs including vehicle servicing and drivers’ wages, the commission is about 30 percent of the order. Global players in this segment, such as Deliveroo, Glovo, UberEats, and Foodora, keep swiftly expanding into new regions.
Food Delivery Investments
The food delivery sector is very attractive for investors, but in order to make a successful investment, one needs to study the specifics of each market and develop an elaborate investment strategy. To date, GR Capital has made two investments in the food delivery sector, and the strategies of these deals are completely different.
- The first investee, Deliveroo, is a leader in developed countries of Europe. Its target customer is people with an average and higher than average income.
- The second one, Glovo, is a leader in Southern Europe and rapidly expanding to Latin America, Africa, and Eastern Europe. The company delivers any product that fits in the cube on the back rack of a moped and positions its service as absolutely affordable.
One company works in developed markets and is focused exclusively on food delivery whereas the second one operates on emerging markets, offering delivery of a much broader range of products. Both are successful. Deliveroo was estimated at USD 750 million two years ago, and now this business costs more than USD 4 billion. As to Glovo, it has been developing in recent months at an average rate of “one new city per week.” Companies are somewhat similar, but they operate in different geographies and provide different end products. Each company has huge potential in each segment, but it would not be appropriate to compare them.
It is not easy for a private investor to make a choice, therefore, more and more often, investors entrust their money to a fund to manage the capitals. This happens for two reasons. First, to be able to invest in a promising foreign startup, connections and reputation are vital. Second, the fund can co-invest with other funds, and in a round experience of all the participants consolidates together. It is smart to listen to the opinion of lead investors who have tons of such deals behind. In this case, smaller funds (and their limited partners) minimize the risks and at the same time learn from the experience of the key investors.
Investment in the food industry is said to be a win-win because people always need something to eat in order to live. Today, the food business is not limited to hamburgers or pizzas: each component has value — from customer experience in making an order to ingredients and certificates. The food market is one of the oldest sectors of the global economy. It was the first to be born and will always exist because one cannot live without eating. Obviously, this market is now undergoing a revolution under the influence of the Internet and the spread of cheap modes of transport. Companies that manage to quickly adapt to the changes and find new business solutions will be sharing the market tomorrow.
