Food delivery sector leaders braced for cut-throat rivalry from new apps

The chiefs of the world’s largest food delivery groups are watching the frantic fundraising by a new generation of instant grocery delivery apps with a mixture of envy and alarm, after investors poured $14bn into the emerging sector.

The heads of both Just Eat Takeaway.com and Delivery Hero warned of cut-throat competition, making it hard for anyone to make a profit. Their rivals at Uber and Deliveroo, however, are eyeing potential alliances with the new delivery apps.

The new apps, which include GoPuff, Getir, Gorillas, Weezy and Dija, among many others, are using their war chests to offer heavy discounts, a tactic used by the more established food apps as they battled for market share. The new apps also complicate efforts by Delivery Hero, Deliveroo, Uber and others to branch out into grocery deliveries, potentially a larger opportunity than delivering food from restaurants.

Getir, an Istanbul-based app that raised $300m at a $2.6bn valuation in March, is already in talks with investors to raise more money at more than double its current value, according to people familiar with the discussions. Getir would not confirm or deny the news but said it was “in constant dialogue with potential investors” to fuel its expansion.

Meanwhile, DoorDash, the US-based food delivery group, and Amazon have also been looking at making an investment or acquisition in the sector in Europe, according to people familiar with the situation. Both companies declined to comment. Any deal would bring DoorDash into Europe for the first time.

Venture capitalists have taken a particular interest in apps that promise to deliver groceries in as little as 10 minutes, thanks to a network of “dark stores” across urban centres in London, Berlin and beyond.

“It’s received a ton of venture capital dollars in an incredible amount of time,” said Will Shu, Deliveroo’s chief executive, adding that the apps’ growth was “pretty staggering”.

Niklas Östberg, Delivery Hero’s chief executive, has warned that too much of that capital is being diverted into coupons and other promotions. That makes it harder for Delivery Hero, which is investing heavily in dark stores or “Dmarts” of its own, to turn a profit, he said.

“As long as there are hundreds of millions [of dollars] put into this space, I think the economics will be very tough,” Östberg said. “There will be a lot of money lost along the way. Consumers will be happy but someone will have to pay for the party.”

Delivery Hero has already opened more than 600 “Dmarts” across the Middle East and Asia, as well as delivering from 80,000 traditional convenience stores and supermarkets. The service is now delivering 400,000 grocery orders a day and accounts for about 10 per cent of Delivery Hero’s revenues.

But Jitse Groen, chief executive of Just Eat Takeaway, said he struggled to see how the business model of several apps entering just a few cities “will be viable”.

Their performance was “probably inflated because of the pandemic”, he said on a recent call with reporters. “It’s just something we are not willing to sink a lot of capital into.”

Uber’s food delivery chief, Pierre-Dimitri Gore-Coty, said he was “following closely what is happening in the dark grocery side of things”, after seeing a seven-fold increase in the size of Uber’s grocery business in Europe, the Middle East and Africa during the past 12 months.

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Gore-Coty compared the funding frenzy around 10-minute grocery apps to the earlier spending spree around electric bike and scooter rental services such as Bird, Lime, Voi and Tier. “It feels a lot like the micro mobility craziness we had a year or two ago when there was funding everywhere and there were new players literally every week,” he said. “It doesn’t mean it’s a bad idea,” he added, but it was still “too early” to assess. “M&A is always going to be an option,” he said.

In the US this week, Uber struck a wide-ranging partnership with GoPuff, the Philadelphia-based convenience-store delivery service, which will be available through Uber Eats in dozens of cities.

Deliveroo is testing a similar distribution deal with Dija, a dark-store start-up founded by two former executives at the London-based food delivery service.

Additional reporting by Dave Lee in San Francisco