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2016 IPO Prospects: Deliveroo Delivers its Way to the Bank

Posted on Tuesday, Sep 13th 2016

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Market reports estimate that in the UK, online orders account for 40% of all food delivery compared with 8% market share in 2008. Deliveroo is one company that has helped drive this percentage upwards. The company is fast approaching the Billion Dollar Unicorn status and is also expected to be an IPO prospect.

Deliveroo’s Offerings

London, UK-based Deliveroo was founded in 2013 by William Shu and Greg Orlowski. The idea behind Deliveroo came about when William Shu moved from New York to London and realized that it was not always possible to get food delivered from the restaurant that he wanted. William connected with his childhood friend and software engineer Greg Orlowski, and soon the company was set up with a mission to bring the world’s local restaurants into everyone’s home or office.

The platform allows users to enter their postcode on the homepage and the platform will show them the local restaurants that will be able to deliver food to them. Customers choose the restaurant that they want to order from, enter their address and payment details, and Deliveroo’s more than 5,000 Roomen or Roowomen then get them their food as soon as possible. Using Deliveroo, customers are able to order food from the local restaurants which otherwise may not offer a delivery service.

Deliveroo has tie-ups with hundreds of restaurant chains and other independent food providers for food delivery. The team has curated a diverse selection of restaurants that range from top local Italian trattorias to national burger chains. Restaurants that have tied up with Deliveroo include names like PizzaExpress, Gourmet Burger Kitchen, and Michelin-star rated Trishna. The service is now available in 84 cities across 12 countries in Europe, Asia, and Australia.

Deliveroo’s Increasing Competition

But the company is now facing stiff competition from some bigger players. Earlier this summer, Uber announced plans to enter the UK food delivery market with its offering – UberEATS. To make matters worse, e-commerce giant Amazon is also entering the space with its restaurant food delivery service in the UK markets. Amazon already offers the service in New York. Amazon offers Prime members free delivery of food with a minimum order of £15. Its entry has led to a price war as both UberEats and Deliveroo are now offering credits to attract consumers.

Additionally, to remain attractive to the restaurants, Deliveroo is implementing innovative ideas. One such experiment has been that of putting shipping containers in car parks and converting them into kitchens that restaurants can use. These boxes, known as RooBoxes, are designed to help a restaurant process more Deliveroo orders. Deliveroo plans to install these makeshift kitchens in areas where there isn’t necessarily high footfalls. The company currently has five RooBoxes across two London sites and plans to open these in other markets as well.

It is also taking measures to control its spending by changing its driver costs. Typically Deliveroo pays its drivers a fixed hourly wage of £7 (~$9.28) an hour and a £1 (~$1.33) delivery fee. It is now experimenting with an alternate pricing model where the drivers will be paid £4.25 (~$5.64) instead. The move has obviously upset its drivers who claim that they will end up earning lower than the local minimum wages.

Deliveroo is also focusing on maximizing driver efficiency scientifically. It has a team of data analysts who run simulations on Deliveroo’s own software to understand new locations and keep testing its core routing algorithm to match the right driver with an order. The studies help optimize driver wait time and food delivery time.

Deliveroo’s Financials

Deliveroo’s detailed financials are not known. The company earns a fee of £2.50 (~$3.30) per order from the customer and an undisclosed commission from the restaurant as its delivery fee. Its big cost includes payment to self-employed cyclists and drivers to deliver takeaway food. Reports estimate that Deliveroo will hit revenues of £140 million (~$185.7 million) this year. It is not known whether the company is profitable as yet, but it was running up losses back in 2014. It does claim high growth and that it has grown 25% month on month since inception with number of orders rising ten times since January 2015.

Deliveroo is venture funded so far with $474.6 million in funding from investors including Accel Partners, Bridgepoint, DST Global, Felix Capital, General Catalyst Partners, Greenoaks Capital, Hoxton Ventures, Hummingbird Ventures, Index Ventures, JamJar Investments, and Nokia Growth Partners (NGP). Its latest round of funding was held last month when it raised $275 million from Bridgepoint, DST Global, and General Catalyst Partners at a valuation of around $1 billion. The new funds will be used to expand market presence and fend competition. Analysts estimate that Deliveroo may be one of the next stellar IPOs from the UK market. Deliveroo hasn’t confirmed if it wants to go public soon.

Photo Credit: Môsieur J. [version 9.1] /Flickr.com

This segment is a part in the series : 2016 IPO Prospects


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