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Hungry startups: Consolidating the food delivery market

The European food delivery sector has been consolidating massively over the past few years and just three multinational giants - Uber Eats, Deliveroo and Just Eat Takeaway currently own almost two-thirds of the sector. Read our new article to find out what has caused the consolidation of the European food delivery sector and what effects it may have on the rest of the economy.

US giant DoorDash buys Finnish startup Wolt

The multinational delivery service DoorDash announced on 9 November 2021 that it is buying the Finnish delivery startup Wolt for more than USD 8 billion. A majority of Wolt’s shareholders have already agreed on a definitive all-stock acquisition in which DoorDash will buy one hundred percent of Wolt’s share. The deal is to be closed in the first half of 2022, and Wolt declared it would retain its name, brand and the same team after the acquisition.

DoorDash, which has so far generated the majority of its annual revenues of USD 2.9 billion in the United States, will gain a dominant position in the European food delivery market with the acquisition of Wolt. By taking over Wolt, DoorDash will get into 22 new countries, including the Czech Republic, Germany, Serbia, Croatia, Hungary, Denmark and Sweden. As a result, it will become a competitor in Europe to the world’s largest food delivery company Uber Eats, which reported global revenues of USD 4.8 billion in 2020.

Competing for the European market

The acquisition of Wolt is just one of many recent M&A activities in the European food delivery market. Not only American but also large European companies have been consolidating and buying startups and local delivery services in recent years. For example, the British delivery company Just Eat merged with the Dutch startup in early 2020. Delivery Hero, a German delivery giant, has made multiple acquisitions of smaller delivery companies across Europe. In 2015, it bought the Greek brand, then the foodora delivery company, which operates in Sweden, Finland and Norway. In the same year, it also bought the Czech startup Dáme Jídlo.

These and many other consolidations in the food delivery market have caused the market share held by small players such as local delivery services to shrink over the past few years. For example, the SensorTower research agency estimates that Uber Eats and Just Eat Takeaway alone collectively owned a full 63% of the European food delivery market in the first quarter of 2021. According to the agency’s report, a further 19% was held by the UK-based delivery service Deliveroo.

Delivery companies split regions

As for the representation of each delivery service in Europe, Just Eat Takeaway covers the highest number of countries. According to its website, the company delivers food from restaurants in 18 European countries, so it operates in most European regions. Conversely, the delivery service Deliveroo, also one of the top three, focuses primarily on food delivery in the most developed markets in Western Europe. It currently operates in seven European countries, including the UK, France and the Netherlands. Uber Eats also has a similar country representation, with a network including Poland, Portugal, Switzerland, Sweden and now also Germany. Finally, the German Delivery Hero, the Finnish Wolt, the Estonian Bolt and the Spanish Glovo focus on the CEE region, where food delivery is still a less developed service sector.

Delivery Hero, Wolt and Bolt win in the Czech Republic

Three multinational import companies are currently represented in the Czech Republic, namely Wolt, Bolt and Delivery Hero, with the brand Dáme jídlo. Dáme jídlo serves the largest number of Czech restaurants (about 6,000), has the largest number of couriers (about 3,500) and, according to Marketing & Media weekly, it operates in 170 cities in the Czech Republic. Finland’s Wolt delivers to more than 2,500 restaurants and its network is the second largest in this respect. At present, Wolt customers can order food in eleven Czech cities. In recent years, the Estonian startup Bolt, which started out as a taxi service but now offers delivery from a total of 800 restaurants in Prague, Brno, Ostrava, Olomouc and Pilsen, has also been making its way into the Czech market. In contrast, the US-based Uber Eats left the Czech market in June 2020.

Solely Czech companies are only marginally active on the market of food delivery from restaurants. During the pandemic, for example, the Czech transport company Liftago was involved in food delivery. In addition, Czech online supermarkets Koší and Rohlí offer delivery of ready-made meals. However, a large part of the Czech food delivery market is held by Delivery Hero (Dáme Jídlo), Wolt and Bolt.

The consolidation of the sector is affected by product differentiation and the number of customers

Consolidation in the European food delivery market is happening for several reasons. First, there is a very high degree of rivalry between existing competitors in the food delivery market due to the increased bargaining power of buyers combined with low product differentiation. The current group of large competitors on the market are engaging in price competition, which leads to margin erosion. Therefore, despite the relatively low capital investment required to set up a food delivery company, the threat of new entrants is low. In fact, even if a company had the capital to enter this business, it would have to subsidise its operations for a long time and bear substantial losses before they would turn to profit.

Another reason is economies of scale. Food delivery is a financially demanding sector with low margins that only increase as the scope of delivery increases. Therefore, the increased number of customers is an important synergy that results from horizontal M&A in the food delivery market. When a food delivery company increases the number of customers, it can streamline delivery and reduce the delivery fees charged.

The food delivery sector is also affected by the current global debate on compensations and benefits for delivery couriers. Until recently, many delivery platforms relied on the gig economy and their couriers were largely self-employed, paid on a per delivery basis. However, in the past year, many governments have begun to demand that couriers have a guarantee of a minimum wage and be treated as delivery service employees. Changes in how couriers are paid and what employee benefits they are entitled to could result in significant cost increases for delivery companies.

Lower negotiating power of restaurants

The consolidation of the food delivery sector may affect us in many ways in the future. For example, the high market share of DoorDash and Uber Eats in Europe may cause these delivery companies to increase the commission fees they charge restaurants. Already during the pandemic, some restaurants have faced high commissions charged by delivery companies. In some cases, these amounted to up to 30% of the order price. High fees from delivery companies may mean further revenue losses for restaurants in the already tense conditions caused by the coronavirus pandemic.

For example, restaurant sales fell by 72% year-on-year in April 2020 in the Czech Republic. Similar year-on-year sales declines continued in the autumn and winter of 2020/2021. Consolidation in the food delivery market and the associated declining negotiating power of restaurants may further negatively affect the restaurants’ income.

An opportunity for ghost kitchens

Consolidation could lead to a boom in “ghost kitchens” (dark kitchens), which cook solely for delivery services. These businesses can be located in more remote parts of cities and can thus afford to reduce fees for customers and pay higher commissions to delivery platforms. Therefore, they may also be more intensely promoted on the apps of these platforms. Increasingly, a greater share of delivery volume is likely to come at the expense of traditional restaurants, some of which may have to consider whether they can afford to operate in the delivery space at all.

However, these specialised kitchens may also represent an opportunity for restaurants that choose to extend their business and add remote facilities dedicated solely to delivery.

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