Disrupting your dinner: how tech companies are changing the way we eat

Such transactions are taking place against a rapidly shifting backdrop. The coronavirus pandemic has changed the way we eat – accelerating a pre-existing trend towards the use of online channels for shopping and take-away services. With out-of-home eateries shuttered during lockdown and people’s movements restricted to the confines of their own four walls, digital platforms have offered an alternative route to connecting with restaurants and grocery retailers alike. And that’s not only true for consumers. Restaurants themselves have relied on the likes of Just Eat to help bring in revenues while their doors remained closed.

Meanwhile, online grocery sales have also soared – climbing by 91 per cent in the UK during the four weeks to 14 June, according to research house Kantar. That rise in demand has shone a spotlight on the likes of Ocado (OCDO) – a platform that could arguably be seen as just as much of a tech firm as it is a supermarket.

It follows that technology is, increasingly, disrupting our dinners. But questions remain about which of those disruptive forces, if any, will win out, and whether further transactions might ensue in the race to the top. Not to mention the possible implications of such disruption for the incumbent players in the supermarket and hospitality sectors.

What does Amazon’s stake in Deliveroo mean?

For Amazon, the Deliveroo deal appears to be about more than just cracking (yet another) new industry. While the Competition and Markets Authority (CMA) provisionally found that the companies would not have the incentive to do so, it is possible that Amazon would be able to bring together 'Deliveroo Plus’ – Deliveroo’s subscription service, which offers free delivery – and its Prime membership service without harming the market, although even the regulatory body admitted that this strategy could put Deliveroo’s competitors at a disadvantage.  

Both companies may be able to create initiatives that provide greater value for the customer, such as a single sign-in or an opt-in choice. Either way, for Deliveroo, a partnership with Amazon could offer new scope for scale, as well as logistical expertise, which could help to offset the costs of last-mile delivery. And for Amazon, the collaboration could lead to the further expansion of its Prime family in the UK – opening up customers to a whole universe of Amazon services, from music to video streaming.  

Amazon’s track record in UK food

Amazon has made no mystery of the fact that it wants to crack the food industry in the UK. It first launched Amazon Pantry in November 2015, which offered everyday essentials including food and drink as well as household supplies. However, this closed at the end of last month. Even so, AmazonFresh, which launched last September, is still operational. The on-demand delivery option, which is available in certain locations to Prime members, is where the group’s partnerships with supermarkets WM Morrisons (WRM) and Whole Foods feature.

Deliveroo does not represent Amazon’s first foray into the restaurant space. Amazon Restaurants was launched in the UK in 2016, although it was only available in certain parts of London. The giant initially offered free delivery for Prime members with a minimum order of £15, but last-mile delivery again proved to be a hiccup, prompting Amazon to later add a £1.99 flat fee on orders.

It may not be a guarantee, then, that Amazon will be able to swoop in immediately and fix the very same issue at Deliveroo that bites into profits. The nature of small parcel delivery makes it hard to scale up in the way that Amazon’s retail business has. But if Amazon can absorb Deliveroo’s key routes into its own, making each journey more profitable, the partnership could both bolster the app’s customer base and push costs down. 

Meanwhile, online grocery shopping is finally profitable

Before the pandemic took hold, over a third of our calories were consumed outside the home. The shuttering of restaurants has brought this down to virtually nil, while grocers have battled to retrofit supermarkets and build out online operations in their fight to feed the nation. Our experiences of rammed supermarket aisles have belied supermarkets’ profitability during this period, with Tesco warning that the crisis could cost it almost £1bn over its coming financial year.

The virus has nevertheless accelerated a trend towards online grocery shopping. In May, supermarket Morrisons announced that it had expanded its ‘Amazon Prime Now’ partnership across London and most major UK cities in response to rising demand. Morrisons has also used Deliveroo to target specific customer groups, including sofa-bound football fans and those celebrating Father’s Day. 

Marks and Spencer (MKS) too has launched a partnership with Deliveroo this year, offering food delivery for the first time in its history. M&S commences its partnership with Ocado in September this year. Ocado retail sales rocketed 40 per cent in its second quarter, which ran to 6 May. The online grocer launched a £1bn fundraising drive last month in a bid to cement its foothold in what appears likely to be a permanently larger marketplace. As part of its fundraising proposal, Ocado cited a study that claimed that an average of 47 per cent of European shoppers who have purchased more groceries online during the pandemic expect to maintain this habit once the outbreak is under control.

Capacity improvements and the online surge have produced a profitable model, according to Shore Capital retail analyst Clive Black. Marketing expenditure has come down, customer incentives have been removed and basket sizes have increased, improving supermarkets' utilisation rates of their drivers and vehicles. “What we’ll now see is work around productivity and picking that mean that in the main it should be a profitable venture for most businesses,” he says, “albeit probably still less profitable than people going in and shopping themselves.”

Delivery offers a lifeline to restaurants

Evidently, some supermarket groups have worked with Amazon to up their online game during the pandemic. But for restaurants, such relationships with tech firms have, ostensibly, been rather more crucial. In the 12 weeks to 14 June, just over two-thirds of people used some kind of takeaway delivery, compared with 18 per cent in the corresponding period last year. Just Eat UK orders rose by a third in April and May.

Fulham Shore (FUL)-owned pizza chain Franco Manca has served customers via Deliveroo and Uber Eats during the crisis. Independent restaurants, which without the cosier banking relationships enjoyed by listed players are at significantly greater risk than listed restaurant groups, have also made extensive use of the platforms. Around a tenth of independent restaurant consultant Claire Love’s restaurant clients intend to permanently build takeaway into their business models. 

Deliveroo and Uber Eats don’t disclose their delivery fee structures, although Ms Love quoted a 30 per cent fee and said that many restaurants are unwilling to pay this. “All of the restaurants at the moment that are looking to keep it on will be using Deliveroo in some form, if people won’t come and collect it,” she says. Many rural locations aren’t covered by the main platforms, however, and this hasn’t changed during lockdown, Ms Love adds.

And while the industry has been busy consolidating during an otherwise barren M&A environment, the likes of Deliveroo and Just Eat may be forced to go further in order to tap into more premium restaurants – many of which don’t want their food delivered by a lime-green-clad cyclist. “Many of the [high quality] independent restaurants wouldn’t touch the likes of Deliveroo and Just Eat,” says independent consultant Juliet Shield. 

There are platforms such as Supper London whose technologies and transport systems are more trusted, Ms Shield says, and these have been used for delivery by premium establishments during lockdown. Businesses with such exposure to more expensive cuisine could make ideal acquisition targets for the technology giants.