In recent years, the food convenience service industry has grown beyond all expectations. We investigate this market disruption, look to where it is headed and examine the opportunities for business buyers.
Data from Euromonitor, the market research company, shows that gains in the home delivery and takeaway food sector have outpaced those of restaurants each year since the financial crisis, as consumers place a greater value on ease and convenience than ever before.
Between 2010 and 2015, the western European market for takeaway and delivery grew 2.2 per cent to £18.4bn, while the value of food bought in restaurants fell by 7.6 per cent to £135.3bn.
Online food-delivery platforms are partly responsible for this shift. Increasing numbers of apps and sites offer an almost unlimited choice and convenience of food options with just a few taps on your phone, and it's changing the entire landscape of food delivery.
In 2014, the takeaway sector was worth £9 billion to the UK economy, but with the emergence of these more advanced online platforms and considerable investment from those looking to break into the food tech industry, the market has exploded.
Services like Deliveroo and Just Eat are becoming more and more commonplace, while smaller businesses are increasingly adapting their blueprints to compete with this new appetite for tech and efficiency.
Currently, three-quarters of food delivery orders are taken using a 'traditional model'. That is, an order is placed by phone and the customer then waits for the restaurant to bring the food to their door.
However, as the rise of digital technology has made people more accustomed to the immediacy and transparency of online transactions, restaurants and food tech companies are increasingly trying to emulate the same experience through their own models.
Two new types of online platforms have taken their place in the market to meet this need: 'Aggregators' and 'New delivery'.
'Aggregators', like Just Eat, emerged about 15 years ago and build on the traditional food delivery model. They work by offering access to multiple restaurants through a single online portal and then collect a fixed margin of the order made by the customer, which is paid by the restaurant. The restaurant handles the actual delivery.
'New delivery' appeared in 2013 and, just like aggregators, allow customers to order meals from multiple restaurants through a single portal. However, these companies also provide the delivery logistics for the restaurant, allowing them to work with restaurants that don't typically deliver – for example, high-end restaurants.
Both models have attracted significant investment in recent years, allowing the companies to advertise widely and build brand recognition. As there is no limit to the number of restaurants these platforms can sign up, once these companies enter a market, they can grow rapidly.
Deliveroo is a prime example of this. Having been launched in February 2013, it is now worth in the region of £600m. Over the course of just 3 years it has set up operations in 12 countries, and in London alone, has a network of more than 3,000 self-employed cyclists delivering food for over 2,500 restaurants. Over the last month they closed a $275m funding round – their fourth round since January 2015, showing that investors are ever keen to grab a slice of this growing market.
The company now claims to be expanding its user base by 25 per cent each month.
Part of their success is down to their willingness to innovate. Over the past year they've introduced several added services including alcohol delivery, express lunch and ‘RooBox’. RooBox is an off-site kitchen initiative that provides restaurants with additional kitchen spaces. This ensures independent restaurants are supported when food delivery demand increases, and removes expensive overheads associated with opening a new restaurant.
Another innovative global company is Uber. Always changing and pioneering markets, they've recently grown a new arm to their ever expanding empire – the online meal ordering and delivery platform UberEATS.
The UberEATS app was only rolled out in select markets for the first time earlier this year, but has already been achieving successes in central London thanks to an aggressive marketing campaign and an ambitious guarantee of compensating customers for any late delivery.
General manager of UberEATS, Alex Czarnecki, said: “UberEATS surpassed our predictions, which is why for the first little while the average delivery time was 36 minutes.
“However, since the launch we have quadrupled the number of couriers on the roads, and now the average delivery time is 28 minutes. We’re so confident in our network of couriers and restaurant partners that we’re increasing the promise so that orders up to £30 will now receive £30 off their next order if it takes longer than 30 minutes.”
Despite initial heavy costs from this initiative, the UberEATS budget has since recovered and swollen to £11bn thanks to heavy investments from Saudi Arabia's Sovereign wealth fund. In fact, investments in the food delivery industry in general reached an all time high last year, with £5.5bn flowing into the category globally.
Deliveroo, Uber and other super-rich corporations (including, as of last June, Amazon's new same-day grocery delivery service 'Amazon fresh') have so far been leading the market, but smaller start-ups are now beginning to emerge for a portion of the food delivery pie.
Farmdrop, Quiqup and Bevy's are gaining a foothold, proving that there is still competition beyond the few big firms, and that the market isn't yet saturated. In fact, the global food market, currently standing at $83 billion, is expected to grow at a rate of 3.5 per cent over the next 5 years.
So, what's next for the industry?
Like many areas in recent times, the food delivery sector has been shaken up by the emergence of internet technology, And as technology continues to change, it's expected that so too will the industry.
Derya Lawrence, research analyst at Euromonitor International, noted that the rise of such third party delivery companies as UberEATS and Deliveroo is forcing restaurants that offer online ordering to innovate, with Dominos Pizza investing in their tech interfaces and mobile apps to make them as seamless as possible.
“Companies that are doing this successfully are seeing a strong growth in their mobile sales and this trend is expected to grow in the upcoming years,” Lawrence said.
He went on to say the number of food orders placed online is steadily increasing, accounting for 9 per cent of the money spent in the consumer foodservice space in 2015. This is almost half a percentage point over the previous year and a percentage point in share from 2013.
Technological advances have enabled a wider remit of businesses from across the consumer food service market to offer online home delivery, with eat-in restaurants seeing a 118 per cent growth in home delivery sales in 2015.
“As we become increasingly urbanised, and lead faster paced routines, foodservice delivery will continue to shift more in the direction of online. This is most likely to benefit third party delivery services thanks to the wide choice and ease of ordering that these companies offer,” said Lawrence.
He went on to confirm that tech will continue to be the driver of change in the food delivery space, claiming that “foodservice outlets are now at the mercy of third party delivery companies”.
As it is, the food delivery market seems to be in the midst of a dramatic channel migration as new online platforms continue to make inroads around the world.
Potential business buyers looking to invest in an area of high growth might be interested in the opportunities this ever-evolving sector can offer over the coming years.
Although buying into a food tech giant will be beyond reach for most, if you're someone who is thinking about purchasing a distressed food business and turning it around then an understanding of the direction the market is heading for will help you to keep up with consumer needs and stay ahead of the competition.
Likewise, if you currently own a food service and are looking for ways to stay at the top of people's radar, and want to create an attractive acquisition target, then adapting certain areas of your business model to accommodate for new trends will be an investment in the future of your business. Or you can buy and bolt-on another business that is at the cutting edge of foodservice trends.
A major shift is happening in the way people are buying and consuming food, and small businesses need to make sure they're front-of-house to meet their needs.
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