Deliveroo: Michelin-starred dining at home
Netflix and chills just got better with Deliveroo; bringing food that you love to your door
Deliveroo – Michelin-starred dining at home
In April 2014, 2 months after the IPO of Just-Eat, one of Europe’s most successful food delivery startups, Deliveroo founders William Shu and Greg Orlowski raised a $4m Series A round led by Index Ventures to deliver food from premium restaurants to people’s homes. There was a lot of scepticism around the model and the timing of the ventures: Just-Eat had just IPO’d consuming all mind share around food delivery; Deliveroo’s model enabled ordering from restaurants that otherwise did not have in-house delivery scooters/bikes, broadening the scope of consumer’s choice to high scale, more expensive or hip restaurants that were previously only accessible at the venue’s location.
Shoryu, a very popular noodle bar in London, doing joint promotion for Deliveroo.
A free growth marketing engine. Each of Deliveroo’s partnering restaurants understood that an order from Deliveroo was incremental to each day’s total revenues because they did not offer at-home delivery themselves. Therefore, they heavily helped advertise the fact that they were on Deliveroo to all the customers after dining in the restaurant. Conversely, Deliveroo’s competitor, Just-Eat, suffered from restaurants pointing loyal customers to order directly through the restaurant’s website once the food was delivered by the restaurant’s employees. Ordering directly through the restaurants that already had a delivery infrastructure in place, vs. aggregator sites like Just-Eat, saved the restaurants 10% fees that they otherwise had to share with the aggregator. The alignment of Deliveroo’s model with the type of restaurants it pursued created a symbiotic relationship where the restaurants became free advocates and marketers for Deliveroo to their customers at the restaurant and also on their Social Media outlets.
Secondly, Deliveroo had one requirement from its network of part-time scooters and motorbike drivers: to always wear a Deliveroo branded hoodie and paint the carriage box on their bikes with the Deliveroo logo. The effect was an ongoing exposure to the Deliveroo brand across the entire city of London as these bikes and motorcycles were driving around all day to deliver food or even working part-time for other businesses. Many people took notice of Deliveroo for the first time by seeing bikers on the street without necessarily associating the company with a food delivery service.The combination of these efforts helped Deliveroo organically grow within each postcode it launched without spending exorbitant amounts on marketing.
On-demand scaling doesn’t happen a city at a time; it happens a postcode at a time. Deliveroo’s emphasis on creating a superior at-home dining experience for its customers relied on its ability to have a rich selection of restaurants on the app for every postcode it claimed to deliver to. While many startups move quickly to launch in city after another, Deliveroo took its time rolling out single postcode at a time in London. The result was that every postcode was at scale in 2-3 months after its launch, meaning maximum utilisation of drivers as well as maximum leverage with new restaurants in that postcode who preferred to cooperate with Deliveroo for fear of being left behind.
Deliveroo is not a food startup; it’s a logistics startup. Deliveroo always saw itself as a logistics company first and a food startup second. Customers came to Deliveroo for having a premium food experience at home. The management thought it was vital for the entire end-to-end order and consumption experience to have customers at its heart. By scaling one postcode at a time, Deliveroo learnt quickly what it meant to operate at scale and be able to deliver on the promise of premium food in under 30 minutes. Further, investments in Technology meant customers could order from their favourite restaurants within the app in one click and see their scooter move on the map and know exactly when to expect their food. Lastly, Deliveroo controlled the entire customer experience, the Company could provide branded premium packaging for the food meaning the customer experience was excellent and consistent every time.
The above operating decisions helped Deliveroo prove the viability of its business model and create a robust reliable customer base. Taking time to grow initially, helped the company develop a playbook on the step by step guide to expanding into a new city that was successfully applied to Manchester and Paris subsequent to London. In January 2015, Deliveroo announced a subsequent financing round of $25M to expand to the rest of the UK. Once the UK was captured, Deliveroo raised $70M in July 2015 to become the European leader of premium food delivery. And ultimately their most recent financing round of $100M has well equipped the Company to scale the business in the 52 cities that they operate in as well as expand into Singapore and Australia.
Student comments on Deliveroo: Michelin-starred dining at home
I agree this is entirely a technology-enabled asset-light logistics company. In your view what are Deliveroo’s competitive advantages over Uber which is rolling out all sorts of services based on the same asset-light technology concept (including Uber Eats in New York)?
If this business model proves successful, what do you think prevents Uber which is already present in most of Deliveroo’s prime locations from entering and dominating the market?
Interesting to see the dynamic in competition versus other instant consumption-driven delivery/logistics start-ups like Jinn. Perhaps the key to success for food-only Deliveroo so far versus food and non-food players like Jinn is that Deliveroo focuses on reaching critical mass in one industry vertical in a particular area. On paper it might be better to cover all products but Jinn is 90% food anyway, despite looking to service all instant deliveries, because that’s where instant consumption (i.e. I want this particular thing in one hour) is strongest (i.e. I’m hungry now versus, oh I can pick up that apple laptop charger on the weekend). You have a fascinating spectrum of instant consumption logistics all the way from Just Eat (relying on the restaurant’s fleet) to Deliveroo (third party delivery for restaurants) to Jinn (third party delivery for all stores) and even new entrants like Uber Eats and Uber Rush. Though it doesnt appear to necessarily be a winner-take-all market, scale and density help wonderfully in these sorts of businesses and I wonder what will determine the winners in this space.
I used Deliveroo in London and agree that it has potential. What I struggle with, though, is the concept of “Michelin-starred dining at home”. Frankly, I go to a Michelin starred restaurant because the food is served to me hot, and fresh, and the ambience is probably great too. It just doesn’t taste the same (e.g., as warm) by the time it gets to your living room in a cardboard box, having been biked across the neighborhood. When Deliveroo first launched it mainly had higher-end restaurants in my area and I couldn’t justify paying full price for what was not a “Michelin star experience”.
I feel like the growth will end up coming from lower and mid-range restaurants rather than high-end (unless there is a sufficient supply of price insensitive office employees working late…)
Definitely agree Lia — even for the mid ranged restaurants I still think its a big financial commitment to eating at home. A bill for two people could easily come to 50-60 GBP when ordered on Deliveroo.
I do think they are benefiting from two major trends: people are valuing at-home experiences, dining and hosting perhaps as much as going out to restaurants and secondly the health or ingredient conscious consumers will have a tough time picking food from Deliveroo’s main competitor which is Just-Eat.
I definitely do agree that the bulk of the business comes from fast casual (like Nandos, Busaba) as well as the mid priced options on the platform.