So hungry for expansion! Delivery Hero just ate Foodpanda.

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December 16, 2016

What’s the Deal?

Over the last weekend, Berlin-based Delivery Hero announced the acquisition of another food delivery startup Foodpanda‘s entire global operation. Interestingly, both startups are backed by the German listed “startup factory” – Rocket Internet. While the price tag was undisclosed, the deal involved share swap. After the sale of 49% stake in Foodpanda to Delivery Hero, Rocket Internet’s stake in Delivery Hero, in return, will increase to 37.7% (from 30% previously). This is not the first deal between Delivery Hero and Rocket Internet. In October 2015, Delivery Hero also acquired Munich-based food delivery service Foodora from Rocket Internet.

 

What’s the implication? – This is just another step of Delivery Hero’s expansion

For some Asian users, Delivery Hero may not be as familiar as Foodpanda and Deliveroo. However, the company does operate in 33 countries (vs 22 for Foodpanda) in Europe, Latin America, the Middle East and Asia – just with other brands. It started 5 years ago in 2011 and expanded to Asia through acquisition from August 2012. Investment and acquisition examples include YoGiYo (South Korea), Baedaltong (South Korea), Aimifan (China) and TastyKhana (India). The recent deal just added Foodpanda to its long list of invested companies.

 

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*Panda icons only indicate some regions that Foodpanda can help Delivery Hero in Asia. They do not represent the whole coverage of Foodpanda. Image credit: Delivery Hero, Foodpanda

 

In our view, the deal is just another step for Delivery Hero’s expansion. We believe not only will the deal enable Delivery Hero to consolidate its leading position in the Middle East where Foodpanda claimed profit making, it will also help expand Delivery Hero’s coverage in Asia especially countries/cities like Singapore, Malaysia, Philippines, Thailand, Taiwan, Hong Kong and Brunei. These are the locations that Delivery Hero does not cover before the deal. From Rocket Internet’s point of view, the deal can also consolidate its portfolio companies and further increase the decision-making efficiency for Delivery Hero.

 

Tough competition remains and we will see more consolidation

In our view, we expect keen competition in the food delivery industry to continue in Asia since the deal only expanded the footprint of Delivery Hero, but there is no consolidation in Asia. Instead, the transaction can lower the direct competition in some overlapped regions between Delivery Hero and Foodpanda like Europe and the Middle East, which in turn can let the latter focuses more on its Asia development.

Meanwhile, as we mentioned in our previous blog post “SATURATED LAST-MILE DELIVERY MARKET PART II – FROM ONE HELL TO ANOTHER” – it is no longer competition within a single industry, but it is a cross-sector battle. Due to the similarities in technology, a lot of location based technology startups have started invading this food delivery market. The most well known example is Hong Kong based Easyvan (the last-mile-on-demand logistic) and the ride-hailing giant, Uber by UberEATS and GrabFood.

 

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Still early in Asia, cash-burning promotions to be expected; Investment opportunities seen

While the food delivery business is relatively mature in regions like the US and Europe, it is still new in Asia. In our view, in Asia, it is still at a stage where startups are fighting for higher market share. This is especially true when players from other industries are now stepping in.

Food delivery startups do not look different for customers and all users top level service – fast and accurate deliveries when they are hungry. As such, with the intense competition, campaigns involving attractive pricing and promotion capture the hearts of the customers. But note, this also leads to a price war or a huge cash-burning marketing campaign.

Looking ahead, we expect to see intense competition through promotional campaigns, followed by some consolidation as it will be tougher for small and medium size companies to survive in this industry. However, from an investment point of view, medium size food delivery startups could be potential acquisition targets for bigger players, posting a potential quick return. In the next article, we will showcase selected food and beverage startups.

 

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