How Deliveroo is transforming its business model to survive.
Online food delivery business Deliveroo has been one of Britain’s most successful startups since its launch in 2013 and managed to become a top competitor in the food delivery scene, holding its own against the heavyweights like Ubereats and Grubhub. The firm has raised $480 million in the last years and is thought to be valued at around $2 billion.
Today, the company’s delivery bicyclists present in 12 countries, more than 200 cities and with more than 30’000 bikers can be seen almost everywhere, bringing tasty food to customers with fast service and competitive prices.
Like many startups, a question still remains: are they actually making money? If so, how?
Delivery apps are notoriously hard to make into something that’s actually, genuinely profitable. It helps that their workers are contractors, responsible for their own taxes, transportation, insurance, and other expenses.
This aspect of their business has certainly drawn its fair share of criticism. Like Uber and other “gig economy” apps, Deliveroo has come under fire for policies that put its workers at a disadvantage. But even with so much of their labor cost offset by the growing “gig economy,” and its glut of underemployed 20- and 30-somethings open to that kind of part-time contract work, Deliveroo still faces challenges when it comes to making a serious profit.
One thing Deliveroo does that’s unique is that it focuses on not only the customer end, but the restaurant end as well.
It’s not just a delivery service for customers. It’s also a done-for-you logistics system for restaurants that don’t have their own delivery systems in place.
It used to be that delivery was usually limited to a few specific types of food, like pizza and Chinese cuisine in the US, that had a longstanding reputation for doing delivery.
Many places offered takeaway orders, but you still had to pick it up yourself.
Deliveroo markets itself to restaurants as a way to make themselves more available to their customer base, and get more orders, by making delivery available — without needing to deal with the logistics of hiring delivery personnel, providing them with transportation, and otherwise adding a whole extra facet to their operations.
Deliveroo handles the whole delivery “supply chain.” They handle the actual orders from customers, as well as the delivery. The restaurants really just need to prepare the actual food.
They’re also positioning themselves for maximum accessibility. According to founder Will Shu, Deliveroo wants to become an integral part of people’s regular routine. Rather than being a one-off weekly thing, they envision a world where people are ordering via Deliveroo as often as twice a day.
Another key feature of Deliveroo is their claim to deliver food in 32 minutes or less. Across the pond, this kind of promise has led to serious problems and lawsuits in the past for pizza places that tried it in the ‘90s.
However, Deliveroo approaches this in a different way. Rather than put the onus on its delivery personnel — most of whom are on bicycles — to get all the way across town in a ridiculously short time, they’ve set up a hyper-localized system of “zones,” where they deliver from places that are geographically close to the end customer.
This is another feature of their logistics-driven approach. They’ve crunched the numbers to determine things like what local traffic is like for cyclists, how long food takes to get cold en route, and other issues.
But despite all that carefully calculated efficiency, one thing is clear: Deliveroo, like other food delivery apps, is destined to struggle to monetize.
Deliveroo’s real profits aren’t meant to be from delivery at all. Instead, their key monetization strategy depends on something else entirely: the data they collect through the service they offer.
Deliveroo’s winning combination of a great app platform for users, plus a solid logistics system for restaurants, is what’s put them so far ahead of their competition and where the real money is.
Their secret? Data. They’ve invested in data scientists to optimize each facet of their logistics system, as well as machine learning systems.
As it turns out, the data they’ve gathered to optimize their service might be more important for profitability than the deliveries themselves.
One new way they’re leveraging this data is to identify gaps in local markets. They’ve launched a new secondary platform recently, called Deliveroo Editions, that intends to help leading restaurants around the world reach new customers in new geographic locations.
The data Deliveroo has used to optimize its own logistics has revealed key gaps in local restaurant markets. For example, they know when high-income areas where residents order food frequently are missing restaurants in particular niches, such as specific ethnic cuisines.
This data helps restaurant franchises pinpoint key locations into which they can expand. Not only that, but Deliveroo itself already has both ordering and delivery covered. The restaurants themselves need only focus on food preparation, as well as in-house dining if applicable. While they still need chefs and, in some cases, front of house staff for dine-in customers, the entire takeaway and delivery process is essentially outsourced through Deliveroo.
This data access, and its value for top global restaurant franchises puts Deliveroo in a powerful, and potentially quite profitable, position. As it turns out, the real money may very well be in catering more heavily to the restaurant side of the delivery equation, rather than focusing primarily on the user end of things.
“Editions is a delivery-kitchen concept,” Deliveroo CEO William Shu tells WIRED. Across London — in Camberwell, Battersea, Dulwich and Canary Wharf for now — the firm has created kitchens that only have room for chefs, kitchen staff and its gig economy workers.
Each of the Editions kitchens will have space for between five and ten different restaurants and Deliveroo plans to open in 30 locations across the UK this year. Trials have been taking place at the four London locations for a number of months.
The idea is to take food to where people are but restaurants aren’t. And Deliveroo’s expansion is largely based around the data collected from customers and locations. “Let’s say you see less than 20 restaurants on the app but the area has a lot of demand,” Shu says. “What we would then do is establish the missing cuisines and invite our partners to take up residency in the kitchens”.
At launch, Deliveroo says it is working with Franco Manca, On The Bab and Motu Indian Kitchen but hopes to expand to 200 once more kitchens open.
The on-demand company is providing the infrastructure for the kitchens — which are essentially large containers fitted-out with relevant kit — as well as the equipment that goes inside them. Restaurant partners are in control of their own menus and employ kitchen staff.
Deliveroo rightly notes that opening a restaurant can be an incredibly expensive and risky undertaking. It’s well documented that scarcity of suitable real estate, skyrocketing rents and business rates prove very real obstacles to new restauranteurs, as well as those looking to expand their reach. So the opportunity for street food vendors to take advantage of Deliveroo’s considerable resources — including fully equipped kitchens — has the potential to be a real launchpad for small brands looking to expand.
The idea of Deliveroo investing in kitchen space was first mentioned in August 2016. At the time, Shu said that while delivery can generate ten to 30 per cent of a restaurants revenue, the additional orders have the potential to cause delays within a physical eateries kitchen.
With the roll-out of Editions, Shu is eyeing the creation of more kitchen-only delivery spaces around the world.
Being a tech-driven company makes Deliveroo unique in the catering industry but it’s fair to say, though, that the company’s motivations are not entirely altruistic. Untold amounts of invaluable data have been collected over the years regarding not only existing customer habits but their unfulfilled culinary delivery desires, too. So there’s no way a British Fish n’ Chips restaurant would be invited in if there wasn’t demonstrable demand in the area in question 😉
How Deliveroo is transforming its business model to survive.
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