The US online retail giant will lead a new $575mn investment into the food delivery start-up, alongside existing investors T. Rowe Price, Fidelity Management and Research Company, and Greenoaks.
Deliveroo has raised $1.53bn to date, which it said it would invest heavily in expanding the company's tech team at its UK headquarters, expand further to reach new customers, and continue innovating through its delivery-only super kitchens, "Editions".
Shares in Deliveroo’s competitors Just Eat, Delivery Hero and Takeaway all dropped in the wake of the announcement.
What’s it in for Amazon?
Amazon wants to gain a greater foothold in the UK food market. It currently sells food in Britain through its Amazon Fresh, Amazon Pantry and Amazon Prime Now services and has a wholesale deal with supermarket Morrisons. But it faces stiff competition from the likes of Ocado as well as the well-developed online sales from supermarkets like Tesco and Sainsbury's.
The investment in Deliveroo aligns with Amazon’s strategy of investing in, or acquiring, businesses that are supportive or complimentary to its wider offering, according to Nick Carroll, Associate Director of Retail at Mintel.
“Amazon did go down the route of its own third-party takeaway service with the launch of Amazon restaurants in 2016, but the intense competition in this market saw it shut the service last year,” Carroll told FoodNavigator.
“However, takeaway service is still an important growth area in the world of delivered goods, and it is logical that Amazon would want to continue to be part of the market – although how large the investment is or how great its involvement in the business is yet to be seen.”
For Deliveroo such investment is crucial to help it grow in a highly competitive marketplace, particularly one that is dominated by a single player, he added.
Data from Mintel’s Attitudes Towards Home Delivery and Takeaway – UK Report (February 2019) found that of the third (34%) of consumers who ordered takeaways using a third-party delivery services, 86% used Just Eat, 23% used Deliveroo and 18% used UberEats.
"Last year rumours flew that Uber was looking to acquire Deliveroo to grow its market share, but instead Deliveroo now looks sets to grow organically - but with a leading player in the delivery market as a key backer," said Carrol.
Is Amazon laying the foundations for a move into bricks and mortar?
Amazon’s move is evidence of it tapping into a growing trend for food delivery, in urban zones especially, and possibly setting the foundations for a move into bricks and mortar, believes Richard Curry, partner in the retail team at property and planning consultancy Rapleys.
If a consumer could receive Deliveroo delivery of Amazon’s range of goods, he told FoodNavigator, “that is tapping into a food market and competing with retailers.”
If Amazon were looking to set anything up in the bricks and mortar space, he noted, then “having all this infrastructure in place is going to be key, as most of the bigger organisations that are already established in bricks mortar have antiquated distribution networks that are focussed on stores.”
It would also need show a point of difference to stand out. “Having this facility would give them that in my view.” He added that from Amazon’s perspective the investment was a “win-win”.
“It gives them another way of breaking into that [food goods delivery] market in its own right and at the same time if they did want to go nationwide into bricks and mortar they are setting up that to give themselves the opportunity to make that decision without it being expenditure on a gamble.
“They know that the [Deliveroo] operation works, and it doesn’t necessarily commit them to go into bricks and mortar but it would be required by them if they were to.”
Amazon’s investment will contribute to:
- Growing Deliveroo's engineering team based in its London headquarters, creating more high-skilled jobs and building on London's growing reputation as a tech hub.
- Expanding Deliveroo's delivery reach in order to continue offering its service to new customers.
- New innovations in the food sector, for example through delivery-only super kitchens "Editions", as well as new formats that will help restaurants expand to new areas at a lower cost and lower risk, bringing more choice to local neighbourhoods
The Amazon/Deliveroo deal could reshape food delivery
Will Shu, founder and CEO of Deliveroo, said: "This new investment will help Deliveroo to grow and to offer customers even more choice, tailored to their personal tastes, offer restaurants greater opportunities to grow and expand their businesses, and to create more flexible, well-paid work for riders.”
Doug Gurr, Amazon UK Country manager, said: "We're impressed with Deliveroo's approach, and their dedication to providing customers with an ever increasing selection of great restaurants along with convenient delivery options. Will and his team have built an innovative technology and service, and we're excited to see what they do next."