What's for dinner tonight?

What's for dinner tonight?

Earlier this week, the boards of Just Eat and Takeaway.com reached an agreement to combine their two European food delivery businesses.

Per Techcrunch:

"While, following completion, Just Eat Shareholders will own approximately 52.15% and Takeaway.com Shareholders will own approximately 47.85% of the combined group — which is set to be called Just Eat Takeaway.com N.V., and will be headquartered in Amsterdam, in the Netherlands."

But that’s not all.

In May, Deliveroo announced a staggering $575 million raise led by Amazon that pushed its valuation to about $4 billion and recently acquired a Scottish software firm to build up an office in Edinburgh.

On the other end, Uber Eats has been trying to leverage its car riders network all across Europe to cement a dominant position between high-end Deliveroo and lower-end Just Eat.

This merger is quite a big deal in the Food Delivery trenches. According to Pitchbook, Just Eat leads the pack with 40% of Europe’s market share, followed by Deliveroo and, you guessed it, Takeaway.com holding 13% each.

Before someone screams “monopoly”, let’s take a step back and asses the situation – does this merger make sense? And how will it affect Europe?

It’s a huge, growing market

According to Statista, revenue in the Online Food Delivery segment amounts to $16 billion in 2019  and is expected to show an annual growth rate of 10.6%, resulting in a market volume of $24 billion by 2023.

Particularly, the platform-to-consumer will almost double from $4.9 billion to $7.8 billion by 2023, and the number of users is expected to grow to 81.5 million.

Number of users in the Platform-to-Consumer Delivery industry. Source: Statista 

And there’s only room to grow from here.

Statista projects that from a 6.1% penetration today, we will reach almost 9.6%. In other words, over 1 in 10 people will order from a food delivery platform.

Penetration of the Platform-to-Consumer Delivery industry. Source: Statista

With the ARPU in the Platform-to-Consumer Delivery segment amounts to $95.62 in 2019 and holding stable over the future, the only thing companies need to do is increase the penetration over an ever-increasing market of internet consumers.

And it won’t stop any time soon:

"There could be a scenario where by 2030 most meals currently cooked at home are instead ordered online and delivered from either restaurants or central kitchens," – UBS' Evidence Lab

One of the reasons why we are seeing an online food delivery boom could well be that food is getting better, cheaper and faster. When you considerably improve an offer and generate new use cases, you increase the market size as a result.

No more soggy pizza means more money.

Companies like Deliveroo and Uber Eats are taking this further than anyone else, building restaurants from the ground up to control the entire supply chain – from cooking to delivery – and driving down prices and delivery times in the mean time.

As I wrote when talking about cloud kitchens a few months ago:

I predict (and I’m often wrong, but whatever) that companies like Uber Eats will begin to vertically integrate more and more, and start opening up cloud kitchens themselves, housing dozens of restaurants.

At first, Uber Eats begged restaurants (the supply side) to sign up for their marketplace. Slowly, as they accumulated demand (customers), onboarding partners became easier.

Now, with significant consumer demand waiting in their pipeline because of the gigantic offering of supply, Uber Eats can capitalize on that.

The importance of economies of scale, loops and fragmentation

What Just Eat and Takeaway.com are doing is a brilliant move. They went from being two of the biggest competitors to becoming the largest food delivery business in Europe, all while eliminating one competitor – each other.

“The Combination of Just Eat and Takeaway.com creates one of the world’s largest and most powerful food delivery websites. It will become a formidable company that will make an impact on tens of millions of consumers across the globe.” - Jitse Groen, CEO of Takeaway.com


First, economies of scale. Economies of scale are a critical part of making the financials of delivery and other transportation services work better. You can develop more efficient routes and plot drivers more closely to pickups and drop-offs, maximizing driver earnings while decreasing costs and providing a better service.

The most pressing issue for Deliveroo and other food delivery businesses is its profitability, as the business has posted massive losses. The problem is that, unlike Amazon, who can take the gas off the pedal and immediately become profitable, unit economics in the food delivery space don’t work just yet.

We haven’t reached that tipping point.

Second, loops. As I mentioned before, a competitive advantage can be represented as a positive loop that maintains and grows a moat over time.

In the food delivery industry, more customers mean more restaurants, which in turn leads to a better offer, cheaper prices, and faster delivery, which means, you guessed it, more customers.

The more customers, restaurants, and choices you have, the harder will be to dethrone your position.

Third, fragmentation. Europe as a whole is larger than the US. But in reality, it’s dozens of smaller, fragmented markets that usually require surpassing different regulations and cultural barriers.

That’s why most companies take a page from the Uber playbook and blitzscale, opening one city/country at a time.

Coincidentally, the one company that appears to have taken a novel approach to expanding territory is Takeaway.com.

What’s the novelty? They buy everything and their mother.

Since its creation, Takeaway.com has acquired a total of 19 companies both in Europe and internationally. And it appears to be working. The group saw a 23% increase in active consumers in 2018 to 14.1 million and is the leading delivery service in several countries including Germany, Israel, and Belgium.

As a matter of fact, Takeaway failed to penetrate the UK market and had to sell its operations to JustEats.com.

Now they are now merging...

There is a race, and there will only be one winner

We are about to enter the Cannibalism Age of the Food Delivery War. Companies have been silently trading and acquiring country operations from their competitors at their convenience for a while now.

But this new behemoth will maximize the potential upside of joining forces and will force competitors to become even bigger to stay competitive.

I predict we’ll start to see the first real acquisition by the end of the year. UberEats is one of the first contenders. Earlier this year they looked into Deliveroo and made an offer for $2 billion that was ultimately rejected.

Deliveries companies are operating at a loss with negative unit economics, solely supported by VC money (even UberEats).

On a long enough time scale, there’s a point in which due to negligence, lack of appeal for the industry or a global change in market forces, the money will dry out, one player at a time.

Ultimately, there will be one winner because VCs can’t subsidize your Sunday night sushi forever.