The high stakes game of chess (or, well, consolidation chicken) that is on-demand food delivery rolls on today with a little more territorial swapping in Europe: Barcelona-based Glovo has agreed to buy three of Berlin-based Delivery Hero’s food delivery brands in Central and Eastern Europe — with deals that it said are worth a total value of €170 million (~$208M).
Specifically, it’s picking up Delivery Hero’s foodpanda brand in Romania and Bulgaria; the Donesi brand in Serbia, Montenegro, Bosnia and Herzegovina; and Pauza in Croatia.
There’s some notable symmetry here: Last year Delivery Hero shelled out $272M for a bunch of Glovo’s LatAm brands, as the latter gave up on a region it had already started withdrawing from in its quest for profitability.
Glovo said then that it would be focusing on “key markets where we can build a long-term sustainable business and continue to provide our unique multi-category offering to our customers”.
Earlier this month the Barcelona-based ‘deliver anything’ app also announced it was picking up Ehrana, a local delivery company in Slovenia. So it’s been on quite the (local) shopping spree of late.
Its existing operational footprint covers markets in South West Europe, Eastern Europe and Sub-Saharan Africa. So its attention here, on the Balkans, suggests it sees a chance to eke out profitable potential in more of Central Europe too.
Glovo said the transactions in Bosnia Herzegovina, Bulgaria, Croatia, Montenegro and Serbia are expected to close “within the next few weeks”, subject to fulfilment of closing conditions and relevant regulatory approvals.
While it said Romania will be completed following approval from the competition authority — but gave no timeline for that.
Its splurge on Central and Eastern European rival food delivery brands follows a $528M Series F funding round in April — so it’s evidently not short of VC cash to burn spend.
Commenting in a statement, Oscar Pierre, CEO and co-founder, said: “It’s always been central to our long-term strategy to focus on markets where we see clear opportunities to lead and where we can build a sustainable business. Central and Eastern Europe is a very important part of that plan. The region has really embraced on-demand delivery platforms and we’re very excited to be strengthening our presence and increasing our footprint in countries that continue to show enormous potential for growth.”
In another supporting statement Delivery Hero made it clear it has bigger fish to fry (than can be served up to hungry customers in the Balkans) right now.
“Delivery Hero has built a clear leading business in the Balkan region in the last couple of years. However, with a lot of operational priorities on our plate, we believe Glovo would be better positioned to continue building an amazing experience for our customers in this region,” said Niklas Östberg, its CEO and co-founder.
A relevant, recent development for Delivery Hero‘s business is the decision to re-enter its home market of Germany — Europe’s biggest economy — under its foodpanda brand, starting in its home city of Berlin this summer (but with a national expansion planned to follow).
This is notable because back in 2018 it sold its German operations to another on-demand food delivery rival, the Dutch giant Takeaway.com — in a $1.1BN deal which included the Lieferheld, Pizza.de and foodora brands — temporarily stepping out of the competitive fray. (Meanwhile Takeaway.com has since merged with the UK’s Just Eat to become… Just Eat Takeaway so, uh, keep up.)
Delivery Hero is returning to Germany now because it can, and because the market is huge. A two-year non-compete clause between it and Just Eat Takeaway recently expired — allowing for reheating (rehashing?) of the competitive food delivery mix in German cities.
Speaking to the FT back in May about this market return, Östberg suggested Delivery Hero has girded itself (and its investors) for a long fight.
“We don’t see necessarily that we are going to go in and win the market in the next year or so. This is a 10-year game,” he said. “Of course we will definitely make sure we put in enough money to be the clear number two, the clear challenger [to Just Eat Takeaway.com].”
Winning at food delivery is certainly a(n expensive) marathon, not a sprint.
There are also of course multiple races being run in markets around the world, depending on local conditions and competitive mix — with the chance that the winner of the biggest and most lucrative races will reach such a position of VC-sponsored glory that it can buy up the top competitors from the smaller races and consolidate everything — maximizing economies of scale and gaining the ability to squeeze out fresh competition to grab a juicy profit for themselves.
Or, well, that’s the theory. Competition regulators are likely to take increasing interest in this space, for one thing. Rising awareness of gig economy workers rights is also putting pressure on the model.
For now, the thin-margin food delivery business needs the right base conditions to survive. The model only functions in cities and ideally in highly dense urban environments. Most of the players in this space also do not employ the armies of riders that are needed to make deliveries — because doing so would make the model far more costly. And in Europe political attention on gig economy workers rights could force reforms that raise regional operational costs, putting further pressure on margins.
Spain has its own labor reforms in train that will affect Glovo in its home market, for example.
Achieving sustainability (i.e. profitability without the need for ongoing VC funding injections) remains a huge hurdle for delivery apps. It will likely require massive market consolidation and/or convincing users to switch from making the occasional order of a hot meal on a weekend to relying on app-based delivery for far more of their local shopping needs — not just lunch/dinner but groceries and toiletries, and other fast moving consumers goods and household items.
It’s notable that super fast grocery delivery is a major focus for Glovo, for example — which has recently been building out networks of inner city dark stores to service in-app convenience store shopping.
Lots of other on-demand app players are also ramping up on that front. Including Delivery Hero — which has been paying more attention to groceries (picking up InstaShop last year in a deal worth $360M).
Glovo building out in Central Europe while exiting markets further afield suggests it believes it can use a concentrated market footprint to drive operational efficiencies and strong order margins through a tightly integrated meal delivery and dark store play.
If it can do that — and offer at least the whiff of profitability — it could make its business an attractive future acquisition target for a larger global giant that’s looking to up the ‘consolidation chicken’ stakes by bolting on new regions.
A larger player like Delivery Hero may even be a potential future suitor — having shown it’s happy to return to markets it left earlier. After all, it surely knows Glovo’s business pretty well since they’ve done a number of market swaps. But, for now, that’s pure speculation.
Zooming out, what the on-demand model of app-based urban convenience means for the future of urban environments is a whole other question — and one which both competition and urban regulators will need to ponder very carefully.
If the rush to scale delivery platforms drives unstoppable consolidation that sees smaller players gobbled up by a few global giants — that can then use their size and scale to outcompete local shops — it may spell even more dark times for the traditional High Street and its family-run bodegas.
Local retail in many places has already been hammered by Internet giants like Amazon. Delivery apps are another high tech threat to bricks-and-mortar shopping. Touch of a button convenience does carry wider costs.