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DELIVERY AGGREGATORS UNWRAPPED – 2021 UPDATE

Reading Time: 7 minutes

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 Bridgerton 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 Domino’s Pizza does.

Platform-to-consumer delivery, which is what Uber Eats, Deliveroo & Just Eat and similar on-demand food delivery businesses offer.

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. Notable recent deals include JustEat and Takeaway.com’s merger, Deliveroo’s acquisition of Cultivate, Zomato buying 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 Delivero 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 has moved into delivery just 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 in its infancy, but the terms ghost kitchen, dark kitchen, virtual kitchen and cloud kitchen are all terms that describe a restaurant fulfilment point.

Travis Kalanick, co-founder and former CEO of Uber, has recently become the majority shareholder of CloudKitchens, which is the owner of FoodStars, which has dark kitchens all over the UK. 

They aren’t alone, Deliveroo also has Deliveroo Editions which is another up and coming restaurant fulfilment point (dark kitchen). It already has 16 in the UK with each one typically consisting 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 in-house brands.

These fulfilment points are growing fast, and they are installing 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 UK:

Aggregator Fees

As far as we know these figures are correct, you may have negotiated a better deal if you are paying less. However, be sure to let us know if you don't think they are accurate.
If reading on a smartphone, turn phone to see table in landscape mode.
Delivery AggregatorDelivered by You CommissionDelivered by Delivery Aggregator CommissionClick & Collect CommissionAdmin Fees
Just Eat£699 +VAT14%30%14%50p per order
Deliveroo£0n/a20-25% Commission, with a cap at 35%.12%n/a
Uber Eats£0n/a30%15%n/a

Example of Fees

I have not added the following operational costs like driver/rider wages, fuel, vehicle (hire & reward) insurance and vehicle maintenance. Bear in mind when doing your calculations. Food costs as a guide of 35-40%, I went with 40% to factor in some packaging.
If reading on a smartphone, turn phone to see table in landscape mode.
Delivery AggregatorNet SalesFood CostsFeesProfit £Profit %
Ordered via Just Eat (Click & Collect)£1,000£400.00£140.00 + £25.00£435.0043.5%
Ordered via Just Eat (Delivered by You)£1,000£400.00£140.00 + £25.00£435.0043.5%
Ordered via Just Eat (Delivered by Just Eat)£1,000£400.00£300.00 + £25.00£275.0027.5%
Deliveroo (Click & Collect)£1,000£400.00£120.00£480.0048%
Deliveroo (Delivered by Deliveroo)£1,000£400.00£350.00£250.0025%
Uber Eats (Click & Collect)£1,000£400.00£150.00£450.0045%
Uber Eats (Delivered by Uber Eats)£1,000£400.00£300.00£300.0030%

Price Comparisons (Focus on Profit Per Item)

In this table, we have worked out roughly what you would need to charge to achieve the same cash margin per item. We have calculated food costs at 40% as a guide.
We found it very difficult to apply a 60% margin across the board because the prices are not realistic.
If reading on a smartphone, turn phone to see table in landscape mode.
Sale Price £ - To Achieve £3 Cash ProfitAdditional Markup %Aggregator Fees %
Fish & Chips (Takeaway)£6.00nilnil
Fish & Chips (Just Eat Click & Collect)£7.2120.1%14%
Fish & Chips (Just Eat Delivered by You)£7.2120.1%14%
Fish & Chips (Just Eat Delivered by Just Eat)£9.3756.1%30%
Fish & Chips (Deliveroo Click & Collect)£7.0116.8%12%
Fish & Chips (Delivered by Deliveroo)£10.3572.5%35%
Fish & Chips (Uber Eats Click & Collect)£7.3222%15%
Fish & Chips (Delivered by Uber Eats)£9.3756.1%30%

Thoughts on delivery charge

When delivery aggregators deliver for you, you will be charged a percentage fee to have that food delivered, which the aggregator keeps -you don’t see a penny. The customer also pays a delivery charge – usually between £2-£3 – and with some platforms a service fee too.

When you deliver using your own fleet, I’d suggest adding a delivery charge of £1.99, it’s a good middle ground which will still 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 from customers?

To make a delivery aggregator work for you, you have to put up your prices to cover the extra costs incurred so that you still make a profit – which is, after all, why you’re doing all this.

To give an idea of what to charge, I’ve produced this handy little calculator that does all the work for you. You may decide this price point is too high and your customers will not pay it, on top of a delivery fee and service charge, but that’s where you have to weigh up the pros and cons of offering delivery v not offering delivery and using an aggregator v creating your own platform.

One of the main reasons why you might want to use a delivery aggregator is because they already have a well-established customer base. Pair that with a huge dose of marketing and advertising heavily to drive traffic and sales, and 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 will list promotional top-placements 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, so can a local food takeaway keep up with a national/international chain which could pay for a sponsored listing indefinitely?

When looking at the aggregator costs above, bear in mind, some of them hire and manage the fleet of drivers. This can be very useful to you because it saves on the cost, risk and logistical headaches that come with managing a fleet of delivery drivers. 

You need to bear in mind that when food leaves your premises, it is out of your control and, therefore, you need to be confident that the aggregator can guarantee the quality, temperature and state of the food up until the point it reaches the customer. If the food doesn’t have the right taste or temperature due to poor delivery conditions, customers will blame you, not the delivery service.

It has been known for delivery aggregators to tie their customers into a long-term contract or even ask for exclusivity in return for better rates. Make sure you are aware of what you are agreeing to.

Cashflow is the lifeblood of any business. The proceeds from your orders made through these platforms can take up to two weeks to reach your bank account, so be confident you can wait that long.

It is fair to say that if you want to compete on the platform, then you will have to squeeze your margins to remain competitive, but you will also have to keep up with commissions and wait to be paid.

Being invisible…

On a local level, customers in your area know what to expect from you. Naturally, you have formed a brand image, whether intentional or not. 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. 

Just Eat, Deliveroo, Uber Eats, Delivery Aggregator,
Will you lose your brand identity?

A few thoughts on brand image:

1 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.

2 Creating a positive brand image through marketing efforts is vital to a business’s prosperity.

3 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.

4 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 – great for maintaining your profit margins. But let’s just think about this for a minute. If you use Just Eat packaging, customers see Just Eat when the food is being delivered, they ordered from Just Eat and paid Just Eat. You can very quickly become a wholesale food operation on behalf of Just Eat. 

Just Eat, Deliveroo, Uber Eats, Delivery Aggregator,

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. So think carefully before you jump in.

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 is for the benefit of the delivery aggregator, not your business. With more and more companies joining because of the perceived value, it will be harder and harder to make your business stand out on the platform. 

1 – You can’t stagger orders on these platforms; they want as many orders as possible for larger revenue.

2 – When a customer complains, they will nearly always take the customer\s side and refund them without knowing your side of the story.

3 – If you get any bad reviews, they do not take the time to verify if they are 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? It’s highly likely they will have already been calling your competitors and telling them of your success on the platform 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 few layers as possible between you and your customers, even 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.

Wrapping up

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 own 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 customers over? What is there to lose?

Thank you to Mark Drummond for helping with the calculations.

Article updated on 02/03/2021


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