The world is seeing a significant transformation in the way people buy and consume food. Modern consumers are more likely to order fast food while sitting at home watching Tiger King on Netflix than they are to cook.
In this article, we take a deep dive into Delivery Aggregators. The online food delivery platform industry is very fast-paced; our focus in this article is the platform-to-consumer segment.
There are a couple of types of Delivery Aggregators:
• Restaurant-to-consumer delivery, which is what Dominoes Pizza does.
• Platform-to-consumer delivery, which is what Uber Eats, Deliveroo, Just Eat & Uber Eats and similar on-demand food delivery businesses offer.
The premise of this article is not to bash the delivery aggregators. It is to shine a light on some facts, and how you can navigate around them.
Consolidation Phase? Well sort of.
I have always thought that with the rapid pace of acquisitions that maybe this industry is slowing down, but I think this is a race to gobble up market share before another phase of growth. Consumers are time-poor, and they are prioritising time more so than ever.
The online food delivery market seems to be going through an exciting period at the moment, with several deals being made by some of the most prominent players in the industry. The notable recent deals include JustEat and Takeaway.com’s merger, Deliveroo’s acquisition of Cultivate, Zomato buys Uber Eats India and DoorDash’s purchase of Caviar.
All deals are very different in nature, all could prove to have a bearing on each other in the long run.
Let’s focus on the merger of Just Eat with Dutch rival Takeaway.com to create one of the world’s biggest online food delivery companies. Just Eat has had to move away from a very profitable discovery model to a much less profitable discovery plus delivery model. Just Eat and Takeaway.com are active in 25 countries and they will be looking to get into another 175 countries, so I think we’ll see more acquisitions and mergers over the coming months and years.
Amazon has recently invested $575m into Deliveroo, and although a minor investor, I do think this is the beginning of Amazon getting more and more involved in the sector.
In my view, the delivery aggregator sector will grow, the competition will be fierce, but fees will remain firm, I can see prices creeping up as will the power the companies exert over the supply chain.
Layers & Layers
Just Eat have moved into the delivery side like Uber Eats & Deliveroo. Then what are they all willing to do to stay relevant in this fast-moving world?
It is evident that the trend of the delivery aggregators is to take up more of the supply chain. The next move is still its infancy, but the terms Ghost Kitchen, Dark Kitchen, Virtual Kitchen and Cloud Kitchens which are all terms that describe a restaurant fulfilment point.
They aren’t alone, Deliveroo also have Deliveroo Editions which is another up and coming restaurant fulfilment point (Dark Kitchen) they have 16 in the UK. Typically, they would consist of between six and ten kitchens per site. It is worth noting that at the moment these kitchens are being rented out by food producers, but for how long? As a case study look at how Amazon now has a number of Amazon Basics items and lots of brand in house.
These fulfilment points are growing fast, and they are installing as another layer in between your customer and you.
Money, Money, Money.
I have broken down some of the costs of being a partner of the leading delivery aggregators in the U.K.
|Delivery Aggregator||Sign Up Fees||Delivered by You Commission||Delivered by Delivery Aggregator Commission||Click & Collect Commission||Admin Fees|
|Just Eat||£699 +VAT||14%||30%||14%||50p per order|
|Deliveroo||£0||n/a||20-25% Commission, with a cap at 35%.||12%||n/a|
|Delivery Aggregator||Net Sales||Food Costs||Fees||Profit £||Profit %|
|Ordered via Just Eat (Click & Collect)||£1,000||£400.00||£140.00 + £25.00||£435.00||43.5%|
|Ordered via Just Eat (Delivered by You)||£1,000||£400.00||£140.00 + £25.00||£435.00||43.5%|
|Ordered via Just Eat (Delivered by Just Eat)||£1,000||£400.00||£300.00 + £25.00||£275.00||27.5%|
|Deliveroo (Click & Collect)||£1,000||£400.00||£120.00||£480.00||48%|
|Deliveroo (Delivered by Deliveroo)||£1,000||£400.00||£350.00||£250.00||25%|
|Uber Eats (Click & Collect)||£1,000||£400.00||£150.00||£450.00||45%|
|Uber Eats (Delivered by Uber Eats)||£1,000||£400.00||£300.00||£300.00||30%|
|Sale Price £ - To Achieve £3 Cash Profit||Additional Markup %||Aggregator Fees %|
|Fish & Chips (Takeaway)||£6.00||nil||nil|
|Fish & Chips (Just Eat Click & Collect)||£7.21||20.1%||14%|
|Fish & Chips (Just Eat Delivered by You)||£7.21||20.1%||14%|
|Fish & Chips (Just Eat Delivered by Just Eat)||£9.37||56.1%||30%|
|Fish & Chips (Deliveroo Click & Collect)||£7.01||16.8%||12%|
|Fish & Chips (Delivered by Deliveroo)||£10.35||72.5%||35%|
|Fish & Chips (Uber Eats Click & Collect)||£7.32||22%||15%|
|Fish & Chips (Delivered by Uber Eats)||£9.37||56.1%||30%|
Thoughts on Delivery Charge
You have to take into account that when you deliver orders with your fleet, you would typically add a delivery charge. When the delivery aggregator delivers for you, usually you’re paying around £2-£3. The delivery aggregator will keep that money, and you don’t see a penny. It’s worth noting that the customer also pays a delivery charge.
However, when you deliver with your fleet, I’d suggest adding a delivery charge of £1.99, which will be perceived as cheap. You’ll still pay VAT on that charge, and the aggregator will take their commission too, but the rest is yours.
With the extra costs that you have to incur working through a delivery aggregator, are you managing to get the right price for it from customers?
So one of the main reasons why you want to use a delivery aggregator is because they have already a well-established customer base. Pair that with a huge dose of marketing and advertising heavily to drive traffic and sales, This should mean a lot of new potential customers.
However, being noticed on those aggregators is not always easy. In most cases, they will charge you a premium for your establishment to show up on the first page of a search. For example, Just Eat promotional top-placements listed in a clearly labelled sponsored slot at the top of search results in a particular postcode for a period of up to 12 weeks.
You pay for a better position on the site, if it’s a question of money can a local food takeaway keep up with a national/international chain which could pay for a sponsored listing indefinitely?
When looking at the costs above, bear in mind, some of them hire and manage the fleet of drivers. This can be very useful because it saves on cost, risk and logistical headaches that come with managing a fleet of delivery drivers.
However, the outsourced service is not always consistent. It is crucial to be able to guarantee the quality, temperature or state of the food after it leaves your premises. If the food doesn’t have the right taste or temperature due to poor delivery conditions, customers will blame the you, not the delivery service.
It has been known that the delivery aggregator to tie you into a long-term contract or even ask for exclusivity, especially if you want to negotiate better prices.
Cashflow is the lifeblood of any business; the proceeds from your orders made through these platforms usually don’t go straight to your account. It can take even up to two weeks before you receive money from your orders.
It is fair to say that if you want to compete on the platform, then you will have to squeeze them margins to remain competitive but also you will have to keep up with commissions and wait to be paid.
On a local level, customers in your local area know what to expect from you. Naturally, you have formed a brand image. It may not have been intentional, but it also may have been intentional. If you have always served the best of something presented in the best way possible, this all contributes to your brand image. You may have even ramped this up by having a logo, branded packaging, and a marketing budget no matter how small or large this helps form a brand identity.
A few thoughts on brand image:
• With the influx of brands on the market currently, more consumers are making their buying decisions based on the brand image rather than the product.
• Creating a positive brand image through marketing efforts is vital to a business’s prosperity.
• A brand incorporates the consumer’s complete experience, with both the product and the company and the mix of associations that develop as a result of these interactions.
• The most powerful way for a company to increase its market share is to create an integrated strategy for marketing and branding and, in so doing, provide consumers with a unified and seamless way to interact with the brand.
One of the key ways you can deliver your brand image is by having great branded packaging, think about how successful it has been for the likes of McDonald’s, KFC and Subway to name a few.
Delivery aggregators encourage you to use discounted packaging with their brand identity, which means at a discounted rate you get nice looking packaging.
There is more to this equation than meets the eye, as simple; you have to calculate the price vs cost of use. If you use Just Eat packaging, customers see Just Eat when the food is being delivered, they ordered of Just Eat and paid Just Eat. You have become a wholesale food operation on behalf of Just Eat et al.
You still have all the overheads and costs, all the power lies with the delivery aggregator and then the customer, your business will be last in line because you are replaceable to the delivery aggregator.
Talking of customers, if this isn’t your platform who owns the customer? You, for sure, don’t. Because the power lies with the delivery aggregators, they do whatever it takes to keep the customer loyal to them. Many would argue that the aggregators are giving you customers all in one place and colossal marketing spend; it is not a difficult argument to oppose. What you have to understand is that the large marketing budget for the benefit of the delivery aggregator, not your business. With more and more companies joining them because of the perceived value, it will be harder and harder to make your business stand out on the platform.
• You cant stagger orders on these platforms; they want as many orders as possible for larger revenue.
• When a customer complains, they will nearly always take the customers side and refund them without knowing your side of the story.
• If you get any bad reviews, they do not care if true or not.
In this relationship, you are supplying the goods, the labour, the skill, the local marketing for their brand; you are creating loyal customers for their platform. So what happens if you want to split and leave the platform? Well, they have already been calling all your competitors and telling them of your success on the platform (true or not true) and telling them they are missing out on a small fortune. It won’t be hard to fill the gap with someone else willing to do this.
Ideally, you should have as little layers as possible between you and your customers, if you have to jump through hoops to get to them. It is worth remembering for the most part that when the delivery has gone well, the customer will think of Just Eat, Uber Eats or Deliveroo. But, on the flip side when it goes wrong, they will think of you.
In my view, this is by design.
I will keep this short, I feel that the best option is to start regaining that brand image you have built, but I would go one step further. I would start by creating your platform where your customers are loyal to your business.
This feat will no doubt take money and time. Once you get past that hard slog, you will have built another saleable asset that is part of your business and not someone else’s.
If you are already with a delivery aggregator then why not build your platform and start trying to convert them over to your own? What is there to lose?
I want to thank Mark Drummond, Paul Goodgame, Ryan Gray and Sanita Charalambous for helping me dig deeper into the facts and figures.
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