FOOD FIGHT

Takeout Companies War on Two Wheels

Delivery riders pay tribute to Leicester City triumph. EDITORIAL USE ONLY A team of Deliveroo riders named after Leicester City FC players sets off from Peter Pizzeria in Leicester to deliver freebies to football fans in celebration of the club winning the Barclays Premier League, ahead of the team lifting the trophy this weekend. Issue date: Wednesday May 4, 2016. Peter Pizzeria hit headlines earlier this year when Foxes manager Claudio Ranieri kept his promise to buy pizzas for the team if they kept a clean sheet, something they achieved against Crystal Palace. Photo credit should read: Rui Vieira/PA Wire URN:26239334 [ Rechtehinweis: picture alliance / empics ]
Meals on wheels: Deliveroo couriers at work in the U.K.
  • Why it matters

    Why it matters

    The business of food delivery, using online platforms for service, is one of the most popular bets on Europe’s start-up scene. But competition is intense and there have been both failures and buyouts.

  • Facts

    Facts

    • U.K.-based food courier service Deliveroo will use new funding for further global expansion. This includes taking on Germany’s food courier start-up Delivery Hero. There is plenty of activity in this sector but only the strongest survive.
    • Deliveroo recently took in another $275 million (about €250 million) to finance expansion. The company is thought to be valued at around $1 billion (€900 million). Delivery Hero is valued at almost €3 billion.
    • In Germany, Deliveroo faces stiff competition from local providers and potentially also new services such as UberEats, an offshoot of ride-sharing service Uber.
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    Audio

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Deliveroo, the food delivery service from London, is spending millions to mount an attack on its German-based rival Delivery Hero.

Few startups are as visible, or have as much impact, in metropolitan areas as the bicyclists of Deliveroo. Bearing turquoise knapsacks with a kangaroo logo, they deliver food from restaurants that don’t have their own delivery service.

Deliveroo promises that city dwellers can order meals from their favorite restaurants, and not just from cheap pizza joints. For its service it takes a commission along with a delivery fee.

Customers have evidently developed a taste for the service: The company claims that since the last round of financing in November, sales have increased fivefold. Insiders say that amounts to several hundred million euros.

“This is an extremely capital-intensive business. Only the number one earns money.”

Hussein Kanji,, Hoxton Ventures, an early investor in Deliveroo

The number of cities served by Deliveroo also increased from 55 to 84 throughout the world. Word has it that in some of those new cities, there’s already profit being made.

The startup was founded in 2013 and recently took in an additional $275 million (about €250 million) to finance global expansion. Investors include DST Global, an early Facebook backer, and General Catalyst, which helped finance Airbnb. Insiders say that the current valuation of Deliveroo is around $1 billion, or €900 million.

In fact some of the biggest bets on the European tech scene involve online platforms for food delivery. Delivery Hero, which operates Lieferheld and Pizza.de, is Deliveroo’s direct competitor. The German startup is financed in part by Berlin-based start-up incubator Rocket Internet and valued at almost €3 billion.

Delivery Hero is headquartered in the German capital and operates in 33 countries. It has grown by providing an online order service to other delivery services and since taking over Foodora a year ago, it also has its own bicycle delivery service for upscale restaurants.

The company’s pink-outfitted riders now tangle with competitors from Deliveroo on the bicycle paths of Berlin and Cologne. Both companies plaster cities with leaflets for their services, often advertising side by side in restaurants.

But experts question whether both platforms can operate profitably alongside each other.

“This is an extremely capital-intensive business: The capacity utilization of the bicyclists is crucial,” said Hussein Kanji from the London investor Hoxton Ventures, which put money into Deliveroo early on. “Only the number one earns money.”

There is intense competition in the sector. In addition to Foodora and Deliveroo, the U.S.-based ride hailing platform Uber could soon enter the German food delivery market. Under the name UberEats, it already offers delivers takeout in the United States and the United Kingdom. As already reported by several media sources, Uber is looking for employees in Berlin and Munich to deliver food. But there is no official launch date as yet.

There are other rivals from the United States too. For example, Grub Hub, the U.S. counterpart to Delivery Hero, operates in the black and has also begun to hire its own bicyclists in order to serve more restaurants.

On the other hand, some of the first competitors have already given up: Brussels startup Take Eat Easy, also financed by Rocket Internet, closed operations in Germany after just a few months.

Food Express, a Berlin startup, filed for bankruptcy last year after chief investor Delivery Hero refused to finance it further and acquired Foodora instead. Food Express was then taken over by Lieferando, another delivery-service platform from Berlin that belongs to the Dutch Takeaway Group. But insiders wonder if the buyer did itself a favor — because the margins are higher with one’s own delivery service than when simply passing on orders. The same is true for expenses.

Deliveroo intends to increase the workload of its expensive delivery service through constantly new offers. In London, it already delivers craft beer and wine.

But its RooBox project could turn out to be even more important. Deliveroo rents its own kitchens, where external restaurants prepare meals that are most frequently ordered on Deliveroo’s platform. Up to now, the project is only underway in a few cities, including New York. But the company says that with new money from investors, it will be expanded.

Over the long term, Mr. Kanji of Hoxton Ventures said Deliveroo could even attack the core business of Lieferheld or Lieferando, which for the most part offer platforms to low-priced restaurants with their own fleets and take commissions of 12 percent.

He said that for many restaurants, it is highly inefficient to employ their own bicyclist for a dozen deliveries per evening. Foodora or Deliveroo could take over this role and achieve better utilization of their fleets.

Currently, Deliveroo doesn’t intend to offer cheap pizza or Asian noodles on its platform but if it helps Deliveroo compete, then the idea isn’t being ruled out for the future.

 

Alexander Demling and Steven Norton are correspondents for Handelsblatt. Miriam Schröder is based in Berlin and covers the startup scene. To contact the authors: demling@handelsblatt.com, m.schroeder@handelsblatt.com

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