- Amazon has become a major shareholder in a major UK rival to Uber Eats, called Deliveroo, leading a $575 million investment in the company.
- The investment comes after UBS made a bold prediction: that the kitchen might be dead by 2030 thanks to food delivery. UBS said food delivery has the potential to become a $350 billion market.
- Business Insider spoke to UBS analyst Hubert Jeaneau about how food delivery could kill off home cooking.
- Amazon owns Whole Foods so it clearly doesn’t believe the kitchen is going to die anytime soon, but its investment in Deliveroo shows it wants a slice of a business that is changing the way people eat.
- Visit Business Insider’s homepage for more stories.
Amazon, one of the biggest companies in the world by valuation, has taken a big stake in Deliveroo as part of a $575 million funding round. Amazon didn’t say how much it invested, but Deliveroo said in a statement that the company was the biggest backer in the round.
This is much bigger than Amazon just taking a punt on one of Europe’s hottest startups.
Deliveroo has reinvented the market for takeaway in the UK and beyond, with innovative technology that makes it easy to order almost any type of food from your local high street for delivery. That’s a big shift from even five years ago when, in the UK at least, takeaway was mostly junk food and limited to Chinese, Indian, or pizza.
There is still a perception that takeaway is a treat, something to be reserved for the weekend or when you’re feeling especially hungover and lazy. But according to an in-depth UBS Q-Series report published in June 2018, the rise of on-demand food is part of a huge change: the death of the kitchen.
UBS envisaged that by 2030, most people will be swapping home-cooked meals for food ordered online. “The ramifications for the food retail, food producer and restaurant industries could be material, as well as the impact on property markets, home appliances and robotics,” the authors wrote.
Business Insider spoke to UBS analyst Hubert Jeaneau, who co-authored last year’s report, about the trend of on-demand food and what it means for home cooking. Jeaneau would not comment on Amazon or Deliveroo, but expanded on the idea of fundamental changes in the way we eat.
The younger generation is much more likely to order takeout than their parents
Jeaneau said the “structural trends” were in place to show that there will be a significant rise in online food delivery over the next decade. “The younger generation is three times more likely than their parents to order food online,” he said. “It is a structural trend, rather than the fact that the young are lazier than their parents. That’s the main long-term driver.”
He added that a market like the UK is still coming from a “low base,” where people still only order takeaway once a month. Even if that number doubled, we’re still not talking about the death of the kitchen.
But Jeaneau said there is a strong base of “high frequency users” who mostly live in the city, probably in apartments, are short on time, and may end up living in places with communal rather than individual kitchens.
There’s some evidence for this, which UBS pointed to in its report last year. There are more people living alone than ever, loneliness is on the rise, and urbanisation is a global trend.
Takeaway no longer means greasy, inauthentic food
Takeaway has conventionally been a byword for junk food. It still is in some cases, but open the Deliveroo app and you can order either cheap chicken or gourmet Turkish food. That’s changing, in part thanks to the rise in food delivery apps.
“The restaurants that did deliver were mostly independent, offering Indian, Chinese, maybe kebabs or pizza, and that was it,” Jeaneau said. “Now you’re seeing burgers, salads, the range of cuisines is increasing, and that resonates more with consumers.”
Takeaway food is currently expensive but the price will likely go down
Currently, consumers pay a premium to order food on apps like Deliveroo or Uber Eats. That’s partly because it’s expensive to run a restaurant, where you’re paying for a prime spot on the high street and employing wait staff and kitchen staff. Someone ordering from a fancy restaurant via a takeaway app is still contributing to those costs, even when they aren’t physically going into the restaurant.
Takeaway apps have pioneered ‘dark kitchens’ in recent years, where restaurants or dedicated food delivery brands prepare their meals in dedicated spaces. They tend to be located in unloved places like warehouses, or even in car parks. But that’s cheaper than having a premium high street space, and those savings can be passed to the consumer.
“If you don’t need to pay to sit a table, for labour costs, and rental costs, the costs could go down quite significantly,” said Jeaneau.
He added that budget is mostly what stops people from ordering takeaway more regularly. Should prices shrink, that’ll change. Another possibility is that robots, which cost less than humans, might one day prepare and deliver our food, again driving down costs.
Amazon eyeing a slice of a potential $350 billion market
Lots of this is highly speculative, and UBS noted last year in its report that regulation, labour costs, and health fears could all stymie the online takeaway sector. We dug into all of that here.
Deliveroo is still a young company and while its finances show promise, it was still unprofitable in 2017. Uber Eats likewise is experiencing big revenue growth, but its parent company is also still deeply unprofitable.
But the bank estimated that food delivery is a $35 billion market currently, and potentially worth up to $350 billion, driven by falling costs and rise in the amount of takeaway food people order.
Amazon owns Whole Foods so it clearly doesn’t believe the kitchen is going to die anytime soon, but its investment in Deliveroo is a sign that it wants to dip its toes in a business that is changing the way people eat.
SEE ALSO: How Deliveroo went from being the idea of a hungry banker to a $2 billion food delivery giant with backing from Amazon
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