Meal delivery has not been something that Amazon has been seriously involved in, to date. But, apparently, that is about to change.
Deliveroo is a British food delivery start-up that is aimed at going toe-to-toe with Uber Eats. Amazon has invested heavily in the new company, becoming one of its largest investors and has recently led an investment round that garnered $575 million for Deliveroo intended to provide funding for competitive business assaults. The demand for delivered meals is growing, both in Europe and the U.S. and is seen by big investors to hold long-term promise. Deliveroo uses bikes for its delivery service in London and provides a frequent and common presence on the streets, akin to the city’s black cabs (ref. WSJ). Other large investors in the company include SoftBank, T Rowe Price and Fidelity Management & Research. Amazon’s investment reflects its persistent interest in getting all kinds of goods, including prepared meals, in the hands of customers as quickly as possible. As we discussed in a previous post, Amazon is quickly building out its own delivery operations (recently offering its own staff opportunities to become franchised delivery companies). The company launched its own restaurant delivery service in the U.K. in 2016, but closed it last year. Amazon offers a meal delivery service in the U.S. on a small scale, in about 20 cities. A company spokesman has said, “We’re impressed with Deliveroo’s approach [and] we’re excited to see what they can do next.” Consumers hold the same expectations for meal and food delivery that they do for clothing and household goods. But food delivery has, thus far, been largely unprofitable for merchants – we’ve talked about Panera’s delivery services, where the delivery fee typically doesn’t cover the cost of the service. Coordinating drivers is a costly proposition that adds to the mix of difficulties currently. Grubhub, a delivery company that went public in 2014, has experienced a 78% drop in profit in its latest quarter. With Amazon’s serious entry into the meal delivery service, shares in many of Deliveroo’s rival companies (Just Eat, Delivery Hero, Grubhub and Uber) all dropped last week. DoorDash has just completed a new funding round and remains a strong competitor. Deliveroo makes money by charging restaurants a commission of from 10-20% and customers a flat fee of approximately $4. The company isn’t profitable globally, but is in London and other U.K. cities where it has operated since 2013. Deliveroo has indicated that it will use the new funding round to build up its engineering team and expand in the markets where it currently operates. Deliveroo was founded by William Shu who had had a career in investment banking. Shu worked as one of the company’s first delivery staff, learning how to plan the most efficient routes. The company’s first business model was to dispatch delivery personnel to restaurants that didn’t have their own take-out services. In recent years, the business model has expanded into setting up its own kitchens where restaurant operators can cook food for delivery. There are currently 215 of those kitchens. Deliveroo also continues to work with about 80,000 restaurant and takeout outlets. At the current time there have been no services established in the U.S. – a situation that could be changing with Amazon’s involvement.