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Amazon.com Inc. and British start-up Deliveroo, which specializes in food delivery, offer in some respects more comfortable companions than Uber Technologies Inc. with its own competing service, Uber Eats.
The US e-commerce giant led Friday a $ 575 million fundraising in the London-based company Deliveroo. One can not help but wonder if the investment is an amuse-bouche for a broader rapprochement, a chance for Amazon to get a detailed overview of Deliveroo's activities before evaluating an acquisition. There are many reasons why this would make sense.
There is evidence: Amazon wants a food delivery service. Last year, the group shut down the Amazon restaurant business in London, amid a fierce price war with Deliveroo, Uber Eats and Just Eat Plc. But it's interesting to maintain a presence in application-based food delivery services. Platforms in Latin America and India are already expanding to products such as pharmaceuticals and grocery products, and this approach could extend to other regions. This poses a threat to Amazon, not least because users tend to access food delivery apps more regularly, according to Chris Caulkin, a venture capitalist at General Atlantic in London.
The Deliveroo mail network must also appeal to Amazon. If you can ensure that people making your deliveries have little or no downtime, they can earn more money and are therefore less likely to go to work for a rival, since they are paid for each delivery made. If they are able to transport both goods from Amazon Prime Now, promising deliveries within two hours, and Deliveroo meals, the risk of downtime is then reduced.
Deliveroo's integration into "dark kitchens" could also contribute to Amazon's logistics. These are facilities that are not attached to a physical restaurant, often housed in boarding containers at affordable sites scattered around London. Although the model is not yet proven, the idea is to reach more customers without the high overhead costs imposed by a restaurant. These sites could also be used as last-mile processing centers for Amazon, and Deliveroo plans to use a large portion of the proceeds from the last round of fundraising to open new sites.
The Deliveroo brand, which focuses on convenience rather than fast food, is entirely in line with Amazon's goals: to attract a similar customer base to Whole Foods, the high-end health product store acquired by Amazon in 2017.
The recent influx of liquidity means that price wars in food deliveries in Europe are likely to continue unabated, which is reflected in the fall in share prices of competing services.
The main difference between Amazon / Deliveroo and Uber / Uber Eats is that, on the whole, Uber Eats food deliverers are not the same as those who ship customers for Uber. Although the systems that manage the two products, of course, have technological overlap, the operational overlap is more limited. This exposes Uber to a high turnover rate of drivers and delivery men, where they are more likely to switch to a rival who can guarantee them more income.
Nevertheless, it is advisable for Amazon to start with a venture capital investment in Deliveroo rather than just a takeover, as it was reported that the two companies had conducted an investigation last year. I am particularly skeptical about the profitability of food distribution and its ability to sustain growth. Deliveroo reported a loss of 184 million pounds ($ 234.8 million) and a turnover of 277 million pounds in 2017, the latest year for which data are available. The company has not been proven and concerns about the path of profitability have been a major factor in Uber's IPO, which has been disappointing this month.
An Amazon / Deliveroo contract could ease worries about profitability. But it is also wise for the Seattle-based company to test how viable it would be to partner before embarking on an acquisition.
To contact the author of this story: Alex Webb at [email protected]
To contact the editor responsible for this story: Jennifer Ryan at [email protected]
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Alex Webb is a columnist for Bloomberg Opinion covering the European technology, media and communication industries. Previously, he had covered Apple and other technology companies for Bloomberg News in San Francisco.
© 2019 Bloomberg L.P.
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