Coronavirus and consolidation: How the online delivery market has transformed during the pandemic

Online food delivery has, almost overnight, become one of the most important and potentially lucrative arms of the retail and restaurant industry.

Once disruptive start-ups like Deliveroo, Just Eat and GrubHub are now entirely transforming not only how takeaways are ordered, but how groceries are ordered too. 

The coronavirus crisis has focused both customer and client attention on these companies, accelerating the importance of their role in the market to levels few expected to see for another half-decade.

Yet wheels set in motion long before the crisis mean that the online food delivery sector will emerge from it nearly unrecognisable from how it went in.

Grocery Storm

More than 300,000 delivery slots have been added across the UK’s major supermarkets since the start of the crisis, while tens of thousands have been hired in an all-out scramble to meet demand.

Almost all grocers are still, nearly two months after the official lockdown was announced, running at capacity and struggling to match demand for online orders.

This has forced many grocers, even those which have never had online delivery services, to reach out to third party delivery giants to try and meet demand.

Deliveroo

Deliveroo, the market leader, has taken the lions share of business from the UK’s increasingly desperate grocery market.

Aldi, the German discounter which has only ever offered online delivery for wine and its iconic “special buys” section, announced earlier this week that it would offer grocery deliveries Via Deliveroo for the first time in its history.

“With online food and grocery spend forecast to rocket by 25.5% this year in response to Covid-19, Aldi is keen to get a slice of the pie and is seeking ways to rapidly enter the e-commerce grocery market,” GlobalData’s lead analyst Sofie Willmott said.

Marks & Spencer, which had also never offered home delivery prior to the crisis, also enlisted Deliveroo’s help. It initially partnered with the company in March, then expanded this partnership in early May due to high demand, offering home delivery on over 130 items from 142 of its stores.

Co-op and Morrisons, both of which already offer their own home delivery services, reached out to Deliveroo to beef up their capacity.

While Co-op has been working with Deliveroo since November, it announced in May that it was nearly doubling the amount of stores offering fulfilment via its app to 770 to “support shoppers” during the pandemic. Morrisons announced in April that it was now offering 70 of its items via the Deliveroo app.

McColl’s, the convenience store giant, also became an unlikely partner for Deliveroo, offering a range of “daily essentials” to customers from 300 stores.

Majestic Wine, with which Deliveroo already has an established partnership, announced this week it was more than doubling the amount of stores fulfilled by Deliveroo, from 30 to 80.

Uber Eats

The ride company’s delivery subsidiary has also seen the emergence of new partnerships during lockdown, ramping up its grocery delivery service in cities hardest hit by coronavirus.

Uber Eats which has until now only delivered groceries on a limited basis, has partnered with grocery giants in France, Spain and Brazil, including Carrefour, Galp and Shell Select.

Here in the UK Wine Rack, Bargain Booze and Select Convenience stores said they are expanding their partnership with Uber Eats to ensure vulnerable shoppers have access to their goods during lockdown.

Bestway, which owns the three chains alongside the Central Convenience Stores brand, said it aims to sign up 200 stores across the UK by the end of May.

Partnerships do not equal profits

Its worth noting that while both companies have chalked up a swathe of new partnerships, both have also announced major job cuts.

This week Uber revealed that it was being forced to make 3000 job cuts in order for its wider business, which has been hammered under lockdown, to stay afloat. While its Uber Eats has seen a spike in demand, the subsidiary remains loss making.

Similarly, Deliveroo announced that it was slashing 15 per cent of its workforce at the start of May, as major restaurants like KFC which still make up a significant chunk of its income, remain closed.

 

Consolidation

While the spike in demand for grocery deliveries has accelerated the transformation of the sector, the most dramatic area of change is the consolidation of almost every major player.

Deliveroo and Amazon

Perhaps the most controversial tie up within the sector has been Amazon’s purchase of a minority stake in market leader Deliveroo.

In May last year Amazon led a $575 million (£450 million) funding round for Deliveroo, in turn purchasing an undisclosed stake in the company. The Competition and Markets Authority (CMA) soon issued an initial enforcement order in July, preventing the two companies from merging any operations until it determined what effect this would have on the sector.

For months it seemed unlikely the CMA would approve the merger, announcing in December it thought the merger posed a “real risk” to competition.

However, in April the CMA surprised investors by provisionally clearing the merger, after Deliveroo said it would go bust without the cash injection from Amazon, citing a major hit to revenues due to the COVID-19 lockdown.

Since the decision the CMA has been slammed by both pizza giant Domino’s, which does not use Deliveroo’s service, and its key rival Just Eat. The former questioned why the money couldn’t come from one of Deliveroo’s other investors which would pose less of a risk to competition, while Just Eat argued that the decision was based off an “extremely narrow” view of its finances.

Should the deal go through, Deliveroo could change gain access to Amazon’s considerable financial and logistical backing, making it a dangerous competitor for everyone else in the market.

Just Eat and Takeaway.com

Just Day’s after the CMA’s decision to approve the Amazon-Deliveroo tie up provisionally, it gave the green light for Just Eat and Takeaway.com’s landmark £6 billion merger.

Despite similar concerns that the CMA could scrap the deal after making a last-minute intervention preventing the tie-up in January, the watchdog announced it was “satisfied there are no competition concerns”.

It said that should the deal have not gone ahead, it did not think that the Amsterdam-based Takeaway.com would have re-entered the UK market, thus negating any concerns over the reduction of competition in the sector.

The newly combined entity however will, similar to Deliveroo and Amazon, have considerably more financial and technological power thanks to the tie up, raising $755 million in an offering of new shares and convertible bonds alone.

The deal came after Just Eat bought the UK firm HungryHouse and Takeaway.com acquired Delivery Hero’s German business in 2018.

Uber Eats and GrubHub

Uber Eats became the latest business to announce a potential merger, announcing in mid-May that it had made a takeover bid for rival firm GrubHub.

Uber Eats and Grubhub, both of which operate in the US and the UK, could reportedly complete a tie-up deal as soon as this month becoming the largest player in the US market by some margin.

Despite Uber Eats’ larger size, seeing gross bookings of $4.68 billion in the first quarter compared to Grubhub’s $1.6 billion, it has a smaller market share in the US according to Second Measure, accounting for just 20 per cent of the market compared to Grubhub’s 28 per cent.

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