Takeaway groups battle for dominance

23 Nov 2012

 by

By Duncan Robinson

After revolutionising the way people buy everything from music to cars, the internet is turning another multibillion-pound industry on its head: takeaway food.

With the takeaway industry worth almost $8bn in the UK and more than $75bn globally, the stakes are high – especially with the online economy’s propensity for winner-takes-all scenarios.

“It’s a landgrab – but not at any cost,” says Klaus Nyengaard, chief executive at Just Eat, the world’s largest online takeaway service by sales.

Since it was founded in 2001, the London-based Just Eat has grown steadily to encompass more than 28,000 restaurants worldwide. Global revenues were £35m in 2011 and will be north of £50m in 2012.

Its business model is relatively simple. Just Eat takes a cut of about 10 per cent of any orders made through its site. Restaurants get a much wider exposure, while customers get ready access to hundreds of reviews of local takeaways – and an excuse to throw away the piles of flyers cluttering up the hall.

Now, however, its hegemony is being challenged, with the most prominent threat coming from Delivery Hero, a Berlin-based start-up formed two years ago.

From a standing start in 2010, Delivery Hero earned revenues of about €25m last year, channelling €250m worth of orders to takeaway restaurants across its 12 markets.

“We want to become the largest restaurant platform in the world,” says Fabian Siegel, chief executive of Delivery Hero, which operates as Hungry House in the UK. “I expect that we will be the largest platform this year.”

Both Delivery Hero and Just Eat have armed themselves for the fight with heavy fundraising. Just Eat raised $64m earlier this year, bringing its total funding over the past three years to almost $130m. Meanwhile, investors have pumped $80m into Delivery Hero.

National fast food outlets are already adjusting to consumers’ shift to online. Online orders accounted for almost 60 per cent of UK sales at Domino’s, the pizza company, in its most recent quarter. Companies such as Just Eat and Delivery Hero are pushing online business further down the food chain to the industry’s independent players.

“[Just Eat] brings customers that we wouldn’t normally attract,” says Jake O’Neill, who runs Flying Fish Sushi, a sushi takeaway in south London. “They get a lot of students. Hungry House has higher-end customers.”

Despite this, the majority of takeaway food is still ordered over the phone – for now. “Our competitor is not Just Eat,” says Mr Siegel. “Our competitor is a paper menu.”

The sector has always been competitive, according to Just Eat’s chief executive: “The new thing that has been introduced, especially by Delivery Hero, is a very different view on investment levels in acquiring customers.”

Mr Nyengaard says Delivery Hero has mimicked the strategy favoured by Groupon, the daily discount website in the US, opting for rapid growth through paying a premium to grow their customer base through acquisitions. “You can have a long discussion of whether that is sustainable or not,” says Mr Nyengaard.

A comparison with Groupon – which has struggled to translate rapid but expensive customer acquisition into sustainable growth to its bottom line since it went public in 2011 – is not necessarily a compliment for a start-up.

The comparison, however, is misplaced, according to Delivery Hero’s chief executive. “The Groupon trap was on the supply side – their business model was not sustainable for the merchants,” says Mr Siegel. “Our industry is different. Every order that we transmit is profitable for the restaurant at the first order.”

“If you invest heavily in customer acquisitions, you lose a lot of money. But on the other hand, you build a business. You don’t want to be profitable in a landgrab situation – you want to grow.”

With rapid growth and steady revenue – if not profitability – both companies are regularly mentioned as prime candidates for an initial public offering.

After a steady stream of acquisitions – including a seven figure cash deal for Spanish rival SinDelantal earlier this month – Mr Nyengaard says Just Eat will look to maintain a strong balance sheet, with one eye on going public, although “not this year”.

“If you expect one day to make a stock listing, it’s always a good idea to have a solid balance sheet, otherwise you take some serious risks. People might believe you are desperate and investors might take advantage of that.”

A similar step for Delivery Hero is less imminent, according to its chief executive. “At some point investors want an exit, but that is two or three years down the line,” says Mr Siegel. “Investors want to come in – nobody wants to get out.”