On-demand food delivery startup Deliveroo has announced that it is leaving the German market, citing difficulties in maintaining the level of customer service that it offers across several other markets that it operates in. The U.K.-based startup explained that it regrets the move and claims that it was not an easy decision to make.
“At Deliveroo we’re on a mission to create the very best food delivery service in the world, and at the heart of this is offering a service that works brilliantly for our customers, riders and restaurants,” it said in an email sent out to its users. “Where we cannot do this to the level that we expect and you deserve, we won’t operate. Therefore, Deliveroo’s focus will now be on growing our operations in other markets around the world.”
However, the writing has been on the wall for a while now. Deliveroo had struggled to grow its market capitalization in Germany, against severe competition within the food delivery space. The company closed down services in several smaller markets across Germany in 2018, then promised to focus on the bigger German cities, with that move looking to have been in vain.
The tremor within the segment was also felt by Delivery Hero, which sold its delivery operations in Germany to Dutch company Takeaway.com in late 2018 for €930 million. This is a regular picture in the European last-mile food delivery market, which is witnessing considerable consolidation in the space. The recent merger of Takeaway.com and Just Eat to become one of the largest companies in the market is part of the consolidation trend taking place within the segment.
The last-mile food delivery space is one of the most crowded in terms of players, with little to differentiate between the companies in terms of services or price points, except the brand itself. This leaves market capitalization largely to chance and great marketing, as companies lack noticeable leverage over competitors.
Customer loyalty does not count for much in such a situation, with customers often installing several food delivery apps on their smartphones, not caring to stick to one company for all their food delivery needs. To gain market share, companies are forced to resort to discounts and attractive offers – a strategy that companies cannot afford to fund infinitely.
The result is consolidation through mergers and acquisitions, and in some cases, market exits as Deliveroo did today. Europe is increasingly becoming a market where considerably deep pockets are essential to make a splash within the food delivery space. For Deliveroo, the decision to not continue seeking an elusive customer base in Germany might partially be driven by the consolidation between its pan-European rivals like Delivery Hero, Takeaway.com and Just Eat.
The Deliveroo services will cease on August 16, and the company has mentioned that it will now focus its energy on accelerating growth and expanding into other markets in Europe and the Asia-Pacific region.
The company is also providing compensation to its riders who have been active on the platform over the last 12 weeks. The riders are entitled to a goodwill payment of 10 days’ pay, which is based on their average weekly earnings over those 12 weeks. The riders also get another goodwill payout of two weeks’ pay, based on the same criteria.
Employees being let go will receive a statutory notice and a payment of two weeks’ for workers who were with the company for less than a year, and a payment of a month’s wages for people who have been with the company for more than a year.