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Britain loves a takeaway. Inspired by the vast array of international cuisine that has been adopted in the country, the UK spends close to £10 billion a year on Chinese, Indian and other takeaway food like pizza, over a third more than back in 2009.
This has largely been the result of two transformations that have occurred in the industry. Firstly, the vast majority of takeaways in the UK and overseas are still ordered using the telephone, with customers directly contacting their favourite outlets. But ordering a takeaway on a mobile app is becoming increasingly common, particularly for the sector’s core clientele of 18-34 year olds. Secondly, what has traditionally been (and remains) a very fragmented industry comprised of tens of thousands of small, independent takeaway restaurants, has now been brought together by companies that effectively operate as aggregators such as Just Eat and Deliveroo.
These companies have predominantly leveraged technology in order to plug the gaps that have remained because of the nature of the market, such as a centralised platform that is able to attract more customers or providing delivery services for restaurants that don’t have their own. The two have so far taken different approaches as to how best to aid their respective restaurant partners and serve their customers, but both have thrived acting as the digital middlemen between restaurants and consumers.
For every £1 that UK consumers spend on food, 12p is spent on takeaways. And although takeaway orders last year represented just 6% of the total eating out-of-home market, takeaways are growing in popularity at a time when restaurants are crumbling under the lower footfall on high streets (as consumers shift to shopping online). Having listed in April 2014, Just Eat entered the FTSE 100 last December when Restaurant Group (which owns chains like Frankie & Benny’s and Garfunkel’s) was pushed out of the FTSE 250 amid a string of competitors shutting up shop.
Read more about Just Eat joining the big league
While the UK has become one of the biggest markets for the likes of Just Eat and Deliveroo, both have expanded into several other territories around the world, where they face stiff competition from other rivals also seeking to steal a slice of the market. These include Delivery Hero and Takeaway.com in Europe, as well as firms like GrubHub in the US.
Competition to attract both customers and restaurants is rising, pressuring the sector to evolve its technology to benefit both sides of the market while expanding its services to provide more assistance to restaurants. This has also driven the rapid consolidation of a fragmented sector that has seen the majority of firms acquire businesses to open up overseas or to build technological capabilities.
Just Eat vs Deliveroo: on course to cross paths
Although both are centred on technology, Just Eat and Deliveroo have revolutionised the UK takeaway delivery market in their own ways, largely avoiding having to directly compete with one another.
Just Eat makes the majority of its money from charging its restaurant partners a commission on each order taken through its platform, promising higher sales through its app and assistance with the likes of promotional work. Customers order using the Just Eat app or online, and the company’s technology transmits this to the restaurant, but they are not responsible for the physical delivery of the food that is ordered, which is still handled by the restaurant.
Deliveroo, on the other hand, differs distinctly. The company also takes orders through an app on behalf of its restaurant partners but uses its huge fleet of self-employed delivery staff that are renowned for zipping around cities on their bikes, picking up the food and taking it to the customer. The model is different too, with Deliveroo charging customers £2.50 per delivery in addition to a slice of the restaurant’s profits.
These different approaches has so far seen the pair avoid one another. Just Eat’s geographical reach has been able to spread further afield and at a quicker rate because it simply provides the modern technology and scale that small independent restaurants need, while Deliveroo has had to concentrate its efforts on city centres where it can source adequate riders and restaurants.
Just Eat can deploy its technology anywhere there is demand from restaurants without having to worry about recruiting delivery staff, and has obviously appealed to restaurants with their own delivery options. Meanwhile, Deliveroo’s model of charging customers and metropolitan focus has seen it become associated with a more affluent customer, providing the logistics for city restaurants looking to diversify their revenue streams that have traditionally come from people eating in, not out, of their establishments.
However, Deliveroo has started to infringe on Just Eat’s space after launching a new service named Marketplace+, which will allow restaurants with their own delivery operations (Just Eat’s prime customer) to sign up. While Deliveroo cannot scale up anywhere near as quickly as its rival, Just Eat is now racing to plug the hole that has emerged in its model by expanding its own delivery operations that would, in turn, directly challenge Deliveroo’s market.
Deliveroo started small and is now going for the lion’s share of the market, while Just Eat started big by swallowing up the market before expanding into heavy human resource delivery operations.
Which approach is best is yet to be seen, and it does pose the question: are Just Eat and Deliveroo heading for a collision course when they could form a promising pairing that complements one another? Just Eat shares have rallied since early 2016 and the company is now worth around £5.4 billion and while the valuation of Deliveroo, a private company, is not known the business was thought to be worth over £1.5 billion based on a fundraising conducted last September.
Just Eat: ‘catering to every taste, mood, occasion and budget
‘The bedrock of our business model is offering customers the widest possible range of restaurants and the best possible ordering experience in every market where we operate,’ – Just Eat chief executive Peter Plumb.
Just Eat is a technology business that originated in Denmark but has since set up home in the UK, where it generates about 44% of its sales. The hub of the business is based around Orderpad, its own platform that allows restaurants to receive orders placed through Just Eat, and communicate the status of the order back to the customer. This has continued to be rolled out at home and abroad, with over 23,000 installed in the UK, Canada, Denmark, Ireland, Italy and Spain at the end of last year. About 69% of all orders in those markets are being handled through Orderpad (77% in the UK) and the firm has accelerated its introduction this year.
Just Eat generated 92% of its annual revenue in 2017 through the commission that restaurants pay on the orders conducted through its web or mobile platform, with 2% coming from the one off connection fees it charges restaurants to join its network. The remaining 6%, which is growing, is from ancillary services such as its top placement promotional service that will push restaurants to the top of the platform. The provision of data and providing discounted deals to long-standing partners are additional services that Just Eat is keen to grow.
Ultimately, Just Eat strives to offer a broad range of cuisines to customers to raise interest and inspire loyalty, and helping restaurants by the digital expertise they would struggle to develop alone ultimately helps them improve both their top-line and bottom-line.
Just Eat keeps growing but sinks to loss in 2017
Just Eat has delivered consistently high revenue growth over the past five years, with its established UK market generating the majority of earnings. Revenue, order and customer growth has been spurred on by its international operations in recent years. However, the company sank to a pre-tax loss in 2017 after restructuring its arms in Australia and New Zealand, encountering a few problems along the way.
It started to consolidate its two brands in the region last year, folding Eat Now into the better known Menulog brand, and bringing both units under its core Just Eat platform. The restructuring took longer than expected, increasing the costs, and was exacerbated as a new competitor entered key cities like Melbourne and Sydney and rapidly rolled out a new delivery service.
Overall, this knocked £180 million off the value of the Australia and New Zealand business, forcing Just Eat to chew on a £76 million pre-tax loss in 2017. But on an underlying basis that strips out those one-off costs, Just Eat would have seen profit grow 14% in 2017 to £104.4 million.