Deliveroo can deliver BIG

Amazon likes Deliveroo, so much so the company has offered to invest £385m into the food delivery company. Encouragingly for Amazon the Competition and Markets authority have indicated they were minded to approve the acquisition of a 16% stake with a final decision due soon.

Covid-19 has undoubtedly accelerated the consumer move to online apps and meal delivery, but with Deliveroo making a £232m loss last year it is reasonable to question what makes the Deliveroo brand and business attractive? I did, and my conclusion is there is a lot Deliveroo can deliver to and with Amazon.

1. A much more profitable meal delivery business model

Deliveroo can bank on continued meal delivery market growth but is unlikely to significantly grow commission paid by today’s restaurants (currently around 30-35%.) Recognising this Deliveroo is now introducing ‘own brand’ meal delivery only menus which will be licensed to restaurant partners. The first of these is the ‘Dream Burger’ menu featuring a range of healthy and affordable burgers with, of course, plant-based options.

The addition of own brands has the potential to be much more than just a bigger slice of profit from today’s value chain. Deliveroo is well placed to radically reduce the cost of preparing food in a way that multi-tasking restaurants can’t.

Deliveroo partners can prepare own brand meals in Editions sites which feature multiple kitchens for partners and shared fulfilment points for collection. Globally there are now 33 with between six and 10 kitchens in each.

First, consider the potential efficiency of this model: highly utilised multiple kitchens, producing data informed menu best sellers, avoiding high street rental costs, staffed only for delivery and with riders able to pick up several orders. Then, consider the sales growth potential of prepared meals priced significantly lower than dining in and located closer to where customer demand is highest.

Delivery app Rappi already has 200 co-working kitchens in South America and wants 600 by 2020. The kitchens attract both start-ups and those extending their brand availability.

2.  The ability to satisfy highly personalised nutritional needs

With the combination of customer data and access to a wide range of healthy meal options there is potential to meet very specific dietary requirements and preferences.  Deliveroo will already have a rich bank of data on food preferences, but if customers are willing to share more data, it could enable a step change in personalisation. Consider the possibility of the Deliveroo app allowing customers to filter meals that match dietary recommendations based on DNA or gut analysis.

Companies such as Viome and DNA Fit are already translating testing into actionable dietary insights – arguably, all that is now missing is the interface between these insights and the healthy meal choices that Deliveroo is seeking to expand.

Viome uses an AI algorithm to turn analysis of nutrients and toxins in your gut into personalised nutrition recommendations

3. The assets to stretch from meals tonight to food tomorrow

Prepared meal delivery and grocery delivery are categories that are converging. Walmart has tied up with take-away delivery companies such as DoorDash and Postmates for grocery pick from store. Meituan who have 600,000 people delivering to 400 million customers in China has added an app dedicated to grocery home delivery. Amazon’s move to establish a connection with Deliveroo (and so more food delivery) is not surprising.

Like Deliveroo, Meituan Dianping didn’t make a profit in the last year. In the year to late January, however, revenue grow by 60%, with the share price responding with a gain of 135%

Looking ahead an active Amazon partnership could be very helpful to Deliveroo. Consider the additional scale (e.g. grocery pick up from Whole Foods Market) and shared investment in applying artificial intelligence and robotics to establish a low cost automated delivery infrastructure. For Amazon Deliveroo plugs a significant hole in the ‘everything store’ proposition.

A connection to Amazon will accelerate Deliveroo progress to scale and profitability. It will also make Deliveroo a more influential force in driving inevitable changes that will make food delivery more accessible, convenient and affordable for consumers.

Key sources for this blog and highly recommended further reading include: Futurism, Forbes and Bloomberg. (Click on each publication title to access the specific article).

The headline image is the creative work of Jodi Nicholl

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