What does it mean for Restaurants if Uber acquires Deliveroo?

Bloomberg is reporting that Uber is in early discussions to acquire Deliveroo.  Deliveroo was last valued at $2 billion and would see Uber attempt to increase their penetration into Europe.  Deliveroo has been very reticent to cede control of their expansion plans, so an offer would have to be significantly higher than the previous valuation.

Dara Khosrowshahi, Uber CEO, with an IPO in the offing for the second half of 2019, has made growing the food delivery part of the business a priority.  Last year Deliveroo raised $480 million in a bid to further expand their geographic reach and their to expand the concept of their dark kitchens.  They are also looking to start preparing food themselves, in a bid to cut the Restaurants out of the marketplace that they have developed in order to increase margins in what is a notoriously difficult business to make money in.

Meanwhile, riders protest over poor conditions.

The Independent is reporting that hundreds of Uber Eats couriers abandoned deliveries to protest their pay and conditions.  The riders blockaded the roads around the UK HQ of UberEats in Aldgate East two days running. They are after a minimum delivery fee of £5 along with an increase for deliveries that are further away.  Some riders believe that their pay will decrease to £2.80 per delivery.  Some of the riders are represented by the Indepedent Workers Union of Great Britain, whose concerns include riders being paid substantially below minimum wage.

The changes that Uber Eats has introduced are designed to increase earnings during busy times but will see rates decrease during the quieter times.  The large number of couriers protesting impacted UberEats customers, with many waiting much longer times for their food to be delivered.

What would a merged Uber Eats / Deliveroo mean for your Restaurant?

This could be the nightmare scenario for most Restaurants.  It would combine the self-driving delivery ambitions of Uber with the vertical integration plans of Deliveroo.  Deliveroo has publicly stated that it intends to start preparing meals themselves in their dark kitchens.  Their database will be able to highlight the most profitable locations for dark kitchens across a range of cuisines and we see the development of large factory kitchens as the future that Deliveroo is aiming for.

Less competition = higher margins

Both companies charge restaurants between 30 – 35% depending on how well the Restaurant negotiates on rates, but the loss of competition in many markets will almost certainly see commision rates increase for Restaurants.

Less competition = worse conditions for riders?

Because both businesses operate 3 sided markets, needing customers, restaurants and riders, one of the less discussed aspects of the competition is for riders.  In a business notoriously difficult to turn a profit

The impact on consumers

Many consumers are shocked to find out the high margins that UberEats and Deliveroo charge.  More restaurants are looking to implement an ‘order direct and save’ program with their customers.  Decreased competition could exacerbate the public backlash of the perceived impact that large multinationals are having on local Restaurants.

How will it effect Just Eat?

This will almost certainly have a negative impact on Just Eat.  They have started transitioning from an order aggregator only model to include delivery which is a much lower (?non) profit business.  The merger of the 2 competitors will see them be a distant 3rd in a lot of markets and the decrease in the network effect could fundamentally undermine their profitability.

How likely is the merger?

The biggest obstacle would be from competition regulators.  In some markets, like Australia, it would leave a virtual monopoly and may struggle to get consent from Governments.

The next biggest obstacle is the desire of the Deliveroo team to sell up.  They have been very keen to maintain control of the business in the past and if they believe that they can continue to grow the business, they may be quite reluctant to sell.  Their plans to extend delivery around breakfast and lunch as well as their intent to increase margins by cooking themselves mean that they might expect a hefty premium to the last valuation that they received.

How can your Restaurant best respond?

We have always said that whoever gets the customers’ email addresses owns the customer and for both Deliveroo and UberEats, they do not pass on the customers details, because they view the customer as being their own.

There are a couple of tactics that we see Restaurants using to combat these practices.

1. Use a Free Restaurant OnLine Ordering system that allows you to take orders online without fees and provides you the customer email address.
2. Run an ‘Order Direct and Save’ campaign.  Include a menu with an offer in each delivery that you get from UberEats and Deliveroo.
3. Run pickup only specials.  Pass on the cost savings that you have if you don’t have to do the delivery.

 

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