What will Deliveroo do to grain-based foods?

by Josh Sosland
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Josh Sosland
For the grain-based foods industry, the announcement that Amazon was acquiring Whole Foods Market was a moment of reckoning in which top executives from every company had to answer the question: “How well positioned are you to participate and win in the e-commerce marketplace?”

While on-line transactions continue to account for a tiny share of retail food transactions, the arrival of Amazon in the supermarket business erased any doubt as to whether e-commerce will be a force in food. Even before the announcement the rapid expansion in Europe of click-and-collect shopping (at levels five to six times greater than in the United States) offered a powerful signal that U.S. retailers and food companies needed to prepare for this change.

To whatever degree bakers and other food companies are ready for this impending change, it’s important that the industry not lose sight of another important way e-commerce is affecting their business — food service. And grain-based foods again may benefit from keeping an eye on developments in Europe for models of how the food service business may change in the Amazon era.

In contrast to sluggish growth in supermarket sales, food service in the United States has rebounded solidly from the funk that depressed the entire food business during and following the 2008 recession. Between 2009 and 2016, annual growth of away-from-home eating expenditures was about 50 per cent greater than growth in at-home eating spending, according to data from the Economic Research Service of the U.S. Department of Agriculture. Indeed, 2016 marked the first time ever that away-from-home eating expenditures in the United States were greater than at-home: $800.3 billion away versus $793 billion at home. As recently as 2003, away-from-home expenditures lagged at home by 17 per cent.

In Europe, a rapidly growing United Kingdom-based company named Deliveroo may offer a peek into where e-commerce may be headed in food service. Established in 2013 by Will Shu and Greg Orlowski of the United States, Deliveroo partners with thousands of restaurants (chains and independent) to deliver food to customers’ homes or offices. Via an app, users may order from a number of different restaurants within a moderate delivery radius. The food is delivered by couriers on bicycles or scooters.

Indicative of its intent to grow as rapidly as possible amid growing competition (which includes Amazon and Uber), the company earlier this year hired 300 more technology workers. The company’s breakneck expansion has taken the business to 150 cities in 12 countries, mostly western Europe, but also Australia, Hong Kong, Singapore and United Arab Emirates. Deliveroo enjoyed a six-fold increase in revenues in 2016, to £129 million.

Following the close in September of a Series F funding round, Deliveroo has raised more than $850 million from investors at a valuation most recently of $2 billion. Investors Deliveroo has attracted include Fidelity Management & Research and T. Rowe Price Associates. Two of its more established competitors — Delivery Hero (based in Germany) and Just Eat (U.K.) — have valuations more than double that of Deliveroo.

In May, Deliveroo announced the launch of Deliveroo Editions, which it describes as hubs where the company “hosts collections” from certain restaurants to expand delivery range. The company-operated kitchens are intended to “connect you with great food from great restaurants, wherever you are, and whatever it takes.”

Numerous delivery services in the United States such as GrubHub and ChowNow are vying for a share of the U.S. restaurant delivery market. GrubHub recently announced quarterly sales growth of more than 30% and gross restaurant sales during the quarter approaching $1 billion. The company currently has 10 million active diners. The company’s market capitalization recently stood at $5 billion.

As on-line restaurant sales grow, it stands to reason that menus increasingly will be shaped to meet the needs of both on-site and delivery customers. Finding ways to help food service operators succeed in this environment may represent an opportunity for U.S. grain-based foods companies sooner rather than later.
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