Startups

Are you a food delivery startup? Start pivoting NOW

food delivery startup london alessiacamera

When you’re working in a startup you need to be ready to pivot every time you see that something in your industry is changing. And I think there are a lot of things happening in this industry which is not guaranteeing a bright and sustainable future.
So, I think if you’re working in a food delivery startup you should run away the fastest you can, as a lot of things are happening giving an idea of where it’s leading to.

Anatomy of a food delivery startup

anatomy-of-a-food-startup-alessiacameraEveryone needs to eat 3 times a day, you might think food delivery is a great business opportunity to be in. You need to pick the category and decide on your business model.

It is a huge space in terms of consumer demand,” says Luciana Lixandru, an investor who helped lead venture capitalist company Accel’s investment in Deliveroo. “People eat three times a day.
“It is one of these markets, like the transportation market, that is so large and it is expanding because it is more affordable now,” she adds, before adding that no new food delivery start-up should be discounted. “It is very early days in Europe. I don’t think you can underestimate anyone.

The food delivery category includes:

  • Meal/restaurant delivery (e.g., Deliveroo, Delivery Hero, FoodPanda)
  • Meal kits (e.g., HelloFresh, Blue Apron)
  • Grocery delivery (e.g., Instacart, Postmates, Door to Door Organics)

In terms of business model you need to plan out on:

  • Decide on your delivery location;
  • Plan your operational needs;
  • Get in touch with eateries within a set radius;
  • Vehicles and delivery employees.

Work on the product, be passionate about food and be ready to charge 15-25% restaurants for your service. It does sound easy, doesn’t it?

Marketing campaigns for a food delivery startup

Apart from the brand, users need to understand the advantage of using the app.
You need to give users an advantage in terms of time and access and make easy to use the app.
It’s about to leverage technology to unlock value in the cost structure and innovate to pull ahead.
A marketing plan should not only be geared up for building a brand, but you have to invest time, energy and money on the channels which get you immediate traffic and revenue.

Goals to achieve:

  1. new users, 
  2. repeat sales , 
  3. recommendation/referrals. 

Strategies and ideas for your digital marketing plan:

  • paid social campaigns, contests, social/time-limited unique discounts.
  • use notifications and discounts to push users to use the app again through newsletters, events-related campaigns or a loyalty program.
  • bulk orders, online to offline social venues (i.e. give promotions for specific FB groups or online communities) or charity-related events.

Funding and deals in the food delivery industry

According to a recent research by CB Insight, after a few peaks in 2014 (+570% year-over-year) and 2015 (+184%), when it hit nearly $5.5 billion across 259 deals, this year things have changed A LOT.
The category’s three most well-funded companies were responsible for 2015′s five largest deals: three deals to the Chinese Ele.me raised over $2.2B, the German Delivery Hero raised $563M, and the Chinese Womai raised $220M.

Larger competitors include the UK’s Just Eat, which debuted on the London Stock Exchange in 2014 and Deliveroo, which recently picked $275m in a new funding round.

In 2016 only $609M across 23 deals in the first quarter of 2016. A fell of more than 90% in the first quarter. What’s going on?

food delivery startup-annual-2016-alessiacamera-CBinsight

On the other way, companies that deliver meal kits directly to consumers are gaining traction in the UK. According to a report from CardlyticsHelloFresh and Gousto are growing by nearly 65% in the first half of 2016, compared with the same period in 2015.

food-kit-startup-london-todd-quackenbush

Pic by Todd Quackenbush

A few food delivery startups have already shut down: do you want to be the next?

Pronto, a London-founded healthy food delivery startup founded in 2014, has shut down in September after running out of money to sustain itself. After having raised $1.6 million (£1.2 million) last August and £800,000 on crowdfunding platform Seedrs in June, it needed more capital in order to compete in this crowded market.
Before was the turn of Take Eat Easy, a Belgium-founded food delivery startup backed by Rocket Internet, which shut down for the same reason earlier in June.
So, why investors are not really keen to pour more money into this category?

London is still the most important city for startups in Europe. It’s the city where you can see the trends and the reactions before every other country in Europe.
This year Uber and Amazon have jumped into the food delivery industry with UberEATS and Amazon Restaurants. For Amazon, it’s just an extension of the grocery delivery service Amazon Fresh.
It’s no doubt that venture capitalists are not optimistic anymore about funding food delivery startups. Amazon and Uber’s advantages are not just related to brand and marketing.
The efficiency in logistics, the huge database of satisfied users and the fact that they might not be oriented at quick economic returns. Which is why if you’re trying to get your space in the crowded food delivery startup sector, you can’t. Better if you start pivoting now!
And not only  if you’re based in London. UberEATS is going global, planning to open in Amsterdam, Brussels, Dubai, Johannesburg and Stockholm before the end of the year.
The market is not for the little Davids anymore: Foodpanda has been acquired by Delivery Hero to synchronise the efforts in terms of customer acquisition and retention.
Competition is hard and it’s in our city already: better if you get ready.

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