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Deliveroo vs Just Eat: is the market big enough to accommodate both?

The two food delivery giants are clearly in a turf war

Deliveroo bicycle and delivery bag
The risks could reside with Deliveroo as it ventures into a ‘lower ticket’ market, which has an unfamiliar feel

Deliveroo has shaken the UK food delivery market by confirming its intention to add 5,000 UK restaurants to its platform by the end of the year.

Its impact was felt most acutely by rival Just Eat PLC (LON:JE.) which saw as much as £450mln wiped from its value in the immediate aftermath of the announcement. 

The move comes just weeks after Just Eat announced plans to introduce its own food delivery drivers, which was widely seen as an attempt to step into Deliveroo’s market.

The two food delivery giants are clearly in a turf war. So, is the market big enough to accommodate both? 

The story so far

In March, Just Eat announced it would invest £50mln into developing its own delivery rider network, thus stepping directly into the Deliveroo territory.

It took a while, but on Wednesday, Deliveroo hit back by revealing its new app, Marketplace +, which adds restaurants to its platform that have their own delivery services.

Put very simply, it allows restaurateurs and takeaway owners to maintain their drivers and use Deliveroo riders when needed.

Different markets

It should be pointed out that Just Eat and Deliveroo serve different markets.

Traditionally, Deliveroo has focused on high-end food, serving a network of mainly urban eateries. Just Eat, meanwhile, has a broader demographic, targeting second-tier cities and towns.

This means Deliveroo’s average takeaway order size is nearly double that of Just Eat – though the latter has scale and volume, processing £3.3bn of orders in its 12 markets. 

Just Eat generated almost £550mln in revenues last year, almost three times as much as its venture capital-backed opponent.

Just Eat may benefit from competition

The rivalry could ultimately be beneficial for Just Eat, according to James Locker from City broker Peel Hunt, with the current pressure on its profit margins “eased” by the introduction of the pricier competitor to the scene.

The risks could reside with Deliveroo as it ventures into a ‘lower ticket’ market, which has an unfamiliar feel.

Brand loyalty should ensure some customer ‘stickiness’, and Peel Hunt’s Locker doesn’t expect mass defections between the sites.

“So, while the restaurants may overlap, the customers should not,” he concludes.

Room for two?

According to Just Eat’s research, the global market for takeaway delivery is worth more than £23bn annually, with the UK, its most developed territory, valued at around £6bn.

But remember, Just Eat has developed a FTSE-100 business valued at £5.6bn on just 14% market share. This leaves quite a bit to play for.

Analysts tend to agree that both companies will find a way to survive and prosper together after stepping up hostilities.

Although both Just Eat and Deliveroo offer a very similar product, they serve different demographics.

So, just like Aldi and Waitrose prosper on the high street, so Deliveroo and Just Eat will find a way to co-exist.

Just Eat did not officially comment on Deliveroo’s expansion plans, but it is hosting an investor meeting later this month at which it will update on strategy.

No doubt there will be questions about the latest skirmish with Deliveroo – and the possible threat from Uber Eats and Amazon Restaurants once these Silicon Valley giants get their acts into gear.

In other words, the spat between Just Eat and Deliveroo is just the starter. The ‘main course’, so far as competition is concerned, is yet to arrive.



Quick facts: Just Eat Takeaway.com

Price: 6682 GBX

Market: LSE
Market Cap: £9.94 billion

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