Food delivery consolidation: who’s really behind the wheel?

With over $55.5B invested globally according to our?FoodTech Data Navigator, 2021 marks a record-breaking year in AgriFoodTech investment, with a 78% increase over 2020! Such exponential growth is accompanied by changing market dynamics, and as the sector is gaining maturity, some areas of AgriFoodTech are showing signs of consolidation.

In the coming months, we will release a series of 3 blog posts that will investigate how the sector is becoming consolidated within three very specific areas: Food Delivery, Cellular Agriculture and Agtech.??

The historical context of Food Delivery

Pioneering companies, like?Delivery Hero?and?DoorDash, were all founded in the early 2010s. However, in recent years their number has exponentially grown,?counting now over 1200 companies offering some sort of meals and grocery delivery solution. In turn, such an influx of players has made the field very crowded and led to a differentiation of services such as e-groceries, or dark kitchens. To better understand the space, we developed a proprietary taxonomy, exemplified here for the Food Delivery sector:

(source: Forward Fooding)

Historically,?Food Delivery as a whole vertical saw the largest portion of funding across the whole AgriFoodTech sector with over $90B (54% of the total for the industry)?raised since 2012. Therefore, it comes as no surprise that the space has seen 15 companies becoming listed in public markets and that 47 of them reached Unicorn valuations (an uptick from?our last analysis in 2021).

The graphs below help to better understand the gap in funding between Food Delivery and the other verticals within?our taxonomy.

Vertical split by activity – 2012-2022 (March) (source: FoodTech Data Navigator)

Funding evolution for Food Delivery (source: FoodTech Data Navigator)

What is happening within Food Delivery: driving factors

The growth experienced in the last few years has been associated with a fierce competition sparked between incumbents and newcomers, causing differentiation of services, among which we now identify eGrocery, Dark Kitchen and Delivery from Restaurants. This has forced?companies to raise larger amounts of funding in order to expand via a spree of acquisitions, aiming to retain relevance in this ever-changing segment. As a testament to this, in the last couple of years, we have started to witness a blend of these activities. In fact, the same companies that saw their success thanks to specialized services, now have to offer a broader scope of services in order to retain their market share.

For reference, here is a split by number of companies and funding for all these sub-verticals within Food Delivery?

Funding and number of companies by Domain – 2012-2022 (March) (source: Food Data Navigator)

As mentioned previously, companies offering meal delivery services started to appear in the early 2010s (with the exception of?Just Eat?funded in 2001), and in the laps of a mere 10 years, many of those early comers managed to acquire other players (e.g.?Glovo?with the?acquisition of Lola’s Market and Mercad?o), expanding into other services or geographies (e.g.?GoPuff?with its initial?expansion in the EU via the UK), going public with billion-dollar valuations (e.g.?DoorDash?and?Just Eat), and even becoming investors into other startups, sometimes not even related to their main core business activity (e.g.?Delivery Hero with BIO-LUTIONS).

Additionally, smart mobility companies as well have sensed the opportunity posed by the increased activity within Food Delivery, and examples like Uber, Bolt and Ola are now active players in this field too.

Finally, it is critical to acknowledge that the pandemic accelerated the expansion of Food Delivery services, with reports for the US market suggesting that?sales have more than doubled in that period. In fact, a?report from Adobe?noted that?Americans spend an average of $6.7B on online groceries each month, 2x more of what they spent each month in the channel before the pandemic. Similarly,?another report from Brick Meets

Click/Mercatus?showed that in the US?grocery delivery, both from retailers (Kroger, etc.) and from online operators (Instacart, etc.), grew 21% YoY between March 2022 and March 2021.

Who are the main players

Let’s now look in detail at some signals of activity to better understand how this segment has been evolving in recent years.

Generally, we can identify three main kinds of actors taking part in the race: ‘old’ established companies that have a firm share within the space thanks to them being?long-time incumbents,?smart mobility companies?and finally?newcomers?which have to resort to incredibly rapid funding activity in order to acquire market share.

Long-time incumbents

This is probably the segment that most people would be familiar with, and where the most notable activity has taken place. We propose here two examples to show how diverse the take on consolidation by these companies can be.

Looking at Delivery Hero, this is a prime example of a company that engages in horizontal expansion in the form of majority acquisitions of fellow delivery providers?to the likes of Glovo?(the latest deal was announced last December 31st). The company however has been?long attentive to the market dynamics and has always acquired companies in order to expand its presence in diverse markets. For more presence in LATAM, Delivery Hero?acquired PedidosYa?(and had shares of?Rappi, which it?subsequently ceded?in order to finance the Glovo acquisition), the same happening in Asia with?Woowa Brothers, which was?acquired back in December 2019. To further reinforce its range of influence, Delivery Hero also decided to?set up a €50M investment fund?in early 2021. The company has been indeed participating in rounds of companies that are not even directly related to its core activity, for instance with the recent?$43M raised by food sharing platform Olio in late 2021.

Another interesting example to follow in this category is Deliveroo. The company, which became public by listing in the LSE via IPO in March 2021, has been operating in the delivery-from-restaurant space for a long time. However,?as early as?2017 Deliveroo introduced an integrated network of dark kitchens, developed and run by the company and called Deliveroo Editions, currently still operating. This marked a groundbreaking innovation in the space as our Food Data Navigator data suggests that over 42% of companies engaging in this activity were founded from 2018 onward. In addition, the company has?now launched a new service called Deliveroo HOP?(grocery delivery from retailers), taking part in the frenzy of ultra-fast grocery delivery providers.

Smart mobility companies

This is among the most interesting developments that the Food Delivery sector has witnessed. In fact, thanks to the technology developed to manage the transport of people,?companies realized that they could pivot it in order to tap into the Food Delivery services too, opening up new revenue streams.

Uber was perhaps the first one to make the jump?with the launch of Uber Eats back in 2014. Considering that the company recently announced that it can now reach?90% of the UK population, it is clear that the bet has paid off. We speculate that its former CEO Travis Kalanick had long realized the incoming potential of this segment, especially considering that since then it went off to?set up the largest network of dark kitchens in Europe.

Another interesting case is Bolt with the launch of its Bolt Market in 2021, initially in Estonia only. However, the?recent €628M?the company raised will be used, aside from expanding into new geographies, to boost its food activities and, in particular, its 15-minute grocery delivery option by building more dark stores.

Finally,?this expansion into Food Delivery has not been restricted to Western countries only. For instance, in India Ola has?acquired the delivery provider Foodpanda?from Delivery Hero in February 2022, while at the same time launching an eGrocery service called?Ola Dash?and operating a network of dark kitchens in India called?Ola Foods. Another example of Asian activity in this regard is represented by Indonesian smart mobility Gojek, which in March 2021 introduced an?online shopping service called GoMart.

Newcomers?

This group of companies is essentially represented by?eGrocery operators, which have all resorted to massive funding rounds in order to fuel a faster expansion?compared to the competitors, with over $11B raised in 2021 alone.?

Getir is probably the most notable example. The Turkish company has raised over?$1.8B?in funding overtime to fuel its expansion in 9 countries across Europe and the US so far, with a?$768M?funding round recently announced. This is not an isolated case as many others follow a similar strategy. Gorillas for instance made history in October 2019 with a Series C worth?just shy of $1B; Zapp with its?$200M latest round?in January 2022; or even Jokr in the US, which became one of the fastest companies in history to hit a Unicorn valuation with its recent?$260M in Series B.?

However,?these players in particular face growing challenges and scrutiny from the public. Their fulfillment centers often?lack automation, while the constant race against competitors to lower the service cost and gain customers pushes them to operate on a no-minimum order policy.

The consequence of this is that companies?are generally at loss due to their operational costs. For instance, in a scenario proposed in?Forbes, Jokr would be losing $154 on a $30 order. Hence, if companies have to rely on massive funding rounds not only to expand but also to keep operations running, doubts regarding whether their valuations reflect their actual market value?start to arise.

In fact,?suffice to say that in recent years we’ve seen many companies closing shop. Fridge No More in the US is a prime example of this, as the company?abruptly shut down operations?due to capital required to keep operational coming from Russian investors (hence the abrupt bankruptcy). Farmdrop is another company that didn’t have this kind of issue but yet stopped its operations after?raising $42M in total, underlying how crucial is the balance game between costs and revenue in this space.

What lies ahead

With all being said, it is clear that Food Delivery is undergoing a radical change from the original simple service of bringing food from restaurants to consumers into a more consolidated space, where all logistic needs of food will be addressed by the same companies. Moreover, as these companies gain traction and unify their operations under the same umbrella, they will start catering also to the B2B side, particularly to automate and streamline food procurements for restaurants, a market eager to evolve as proved by?Ninjacart success, or?Choco with its 350% growth in users in the last year.

What we anticipate here at Forward Fooding is that?this segment will keep experiencing a large volume of funding and M&A activity for the next few years, but ultimately this will result in very few players left. This will take the form of companies providing a one-stop-shop experience for all things Food Delivery, including the more “futuristic” implementations such as food delivery robots and drones (such as?Nuro?and?Kiwibot).

Do you want to learn more about AgriFoodTech? Access our Food Data Navigator?HERE?or get in touch?HERE?for a tailored consultancy.