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The battle to deliver Britain’s food — January 14, 2020

The battle to deliver Britain’s food

Food delivery services are everywhere across the UK – but can one dominate?

The list of food wars in the UK is long and slightly mind boggling. You had the Ice Cream Wars, where Glaswegian drug-slinging ice cream van drivers fought a turf war across the Scottish city. There were the Cod Wars fought between Icelandic and UK fishermen. One person was killed, another injured and countless fish lost their lives in this conflict. There was the Bean War, when a shop ended up selling a tin of beans for minus 2 pence in a race to cut prices and attract shoppers.

 Another food war is heating up in the United Kingdom. This time it isn’t centred on one type or meal. Instead, it is fought over who gets to deliver Britons their food. It is a three-way fight, with a native British start-up, an old dotcom style business, and a massive foreign invader. The stakes? Cornering a market that is already worth over £10bn already.

The British takeaway and food delivery market has a long history. It probably goes farther back that the traditional fish and chips, but that dish really kicked off the whole thing. From punters lining up, ordering their food and bringing it home with them, it evolved into the branded and fully integrated delivery system most obvious with institutions, however culinarily respectable, of Dominoes and Pizza Hut.

Up until only really a decade ago this was the way things were done. A customer would get a menu through their letterbox. They’d ring up the restaurant and order. The food would be delivered by someone employed by the restaurant. Straight forward and simple. This system kept people fed with countless curries, pizzas and chow meins.

The internet changed that.

Just Eat emerged in the 2001. It allowed small, independent restaurants to be found online. Just Eat wouldn’t deliver the food themselves but would provide the platform for online ordering. Though it came after the dotcom bubble, its ambitions were limited and never attracted the astronomical valuations that have characterised the current tech boom.

Next on the scene were the delivery firms. They would provide the same platform as a Just Eat or Hungry House but would also process and deliver orders. With a fleet of underemployed cyclists or scooter drivers, their logos can be seen all over London. Deliveroo was the brainchild of an American transplant in England. It was created in 2013 and is one of the few European unicorns that can rival its US counterparts.

Those US counterparts eventually arrived in the UK too. Uber Eats is the third of our cast to launch. In 2016, the ride-hailing app launched its related food delivery service. These competitors have cornered the market in Britain. They have expanded without hurting each other too much. Now, though, the scene is set for a showdown between them all.

Who will win?

The tactics are the same as other business wars that have been fought out in Silicon Valley. Out raise your opponents, grow rapidly while burning through cash and hope you’re the last one standing. Uber Eats has experience in this type of knock-down drag-out fight. Its parent company is skilled at losing tons of money in the hopes of future dominance. Uber’s core business is yet to turn a profit yet it enjoys a market capitalisation of $45bn.

It is skilled at raising money. Before it went public in early 2019, it had wrung out nearly $25bn in private funding. Those deep pockets will need to be employed against Deliveroo, which has also raised barely believable amounts of money. After rebuffing a takeover attempt by none other than Uber, Deliveroo managed to raise $575m from Amazon.

It needs it too. In 2018 Deliveroo lost £232m. Uber Eat’s own losses aren’t separated out from its parent company. It is safe to assume that it isn’t profitable though, even if it makes more of a return than Uber’s ride hailing service.

The outlier here is Just Eat. Already an old horse, at least when considering the small timescales of tech companies (it is three years older than Facebook), it was born in a time when investors were actually looking for a business to make money. Rather than just burn.

Just Eat had a net income of £101.7m in 2018. But that is down from 2016’s £115bn. That squeeze on profits is also being felt by its European competitor takeaway.com. Those two are in talks to merge, creating a company that can go toe-to-toe with Uber Eats and Deliveroo.

That points to Just Eat as being the eventual winner. It already is a winner. It makes money. Even after it moved closer to its competitors, by offering food delivery fulfilment in 2017. That’s a notoriously hard place to make money in, as attested to by Deliveroo’s results as well as by Grubhub, a US service similar to Just Eat:

[We] don’t believe now, that a company can generate significant profits on just the logistics component of the business.

Things are, alas, more complicated than that.

Uber Eats and Deliveroo can outspend and undercut Just Eat. They can strike exclusive deals with major brands keeping diners locked into one platform for, say, McDonald’s. Uber already fulfils 10% of UK McDonald’s orders.

Just Eat has enjoyed a long relationship with small, independent restaurants. That could be its competitive edge, but Deliveroo is also crowding into the market. All these firms are becoming increasingly similar to one another. Deliveroo is acting as a platform, similar to Just Eat’s early days. Pick-up options, where diners go and collect their own food, is offered on all services now. That means the platforms still make commission without having to pay those pesky delivery people.

What’s next?

Virtual brands and dark kitchens are the current trends taking over the industry. Virtual brands are ones which live entirely online. They don’t have physical locations. They can be set up easily, cheaply and quickly in markets that might be missing a certain cuisine.

The real power of data is shown here. If there is a location with a lot of people searching for sushi dishes but there isn’t a sushi restaurant able to serve them, then a virtual brand could be created.

They would be placed in dark kitchens. These are kitchens that cater solely for the delivery market. Different styles of food and brands would be located in a place not available to the general public. They save on rents, by not needing to be located in high footfall areas and make it more efficient for couriers to collect and deliver food. Travis Kalanick set up a business providing dark kitchens when he was booted as Uber’s CEO.

Dark kitchens and virtual brands are just two efficiencies these firms can make. They have a stable of couriers working for them, but their busy periods are all clustered around the same time. Dinner is the most active time, as you can imagine, with some spike of orders around lunch. Apart from that they aren’t earning money for either themselves or for the company.

So why not deliver other things? Uber Eats and Deliveroo are expanding into grocery deliveries. Maybe they could become the new milkmen as well. Or deliver purchases from shops to customers within a short period of time.

That’s because, at the heart of it, Uber Eats, Deliveroo and Just Eat aren’t food delivery companies. They are marketplaces with point-to-point logistics divisions. The winner will be the one who can expand quickest, get the most customers and harvest their data most effectively. That data is the key.

It can be used to provide a new virtual brand to an area where it will be successful. It can be used to predict flurries of activity or forecast future demand. Sell that data to the restaurants they work with and they can build up relationships which act as moats to their competitors.

Right now, Deliveroo is in last place. It is a UK-based company, making it harder for them to reach the willing rich investors of US VCs. It is operating in the same way to Uber Eats without the support its competitor enjoys. If Amazon continues to support it, though, and build out its food delivery service into a broader delivery business, it may just come out on top. But then it won’t be Deliveroo, it would be Amazon Delivery.

Just Eat is the most interesting of the three. An older company, already profitable, but willing to try new things, it may just be my favourite to come out on top. The merger with takeaway.com is a smart move. They can share expertise, explore new markets and raise money better as a larger company.

Just Eat also has a much better reputation than either Deliveroo or Uber Eats. They aren’t in the press often. They don’t have news stories about underpaid workers or data privacy concerns. They don’t have to run adverts about how safe their service is (as Uber have to do).

So, who will win the food delivery war? My bet is on Just Eat.

What happens now? —

What happens now?

What’s in store for British politics following the election result

Originally written: 19/12/19

After a five-week campaign with politics and politicians taking up every nook and cranny they can squeeze themselves into on your television, radio or smartphone, polling day gave us all a respite. Broadcasters in the UK are barred from reporting on campaigning details during polling day. From just after midnight until the polls closed at 10 PM, we had a welcome break from politics.

But that brief reprieve was only very brief.

The first real indication of what result the election may have brought was the exit poll. On the strike of 10 PM, as polling stations closed around the country, the exit poll revealed a surprising Tory majority.

It wasn’t close either.

Predictions have the Tories winning around 360 seats. Labour slumped to below 200.

Boris Johnson has been returned to 10 Downing Street with a strong majority

So, what happens now?

Brexit

The issue which dominated and defined this elections was Brexit. The Tories won with their simple message of ‘Get Brexit done’. Labour floundered with their renegotiate, referendum, remain position, while voters saw the Liberal Democrat’s position of revoke as undemocratic.

Mr Johnson now has the majority he needs to deliver his version of Brexit. This has already passed the last Parliament, but the withdrawal agreement, similar to Theresa May’s apart from the fact that there will be a customs border between Great Britain and Northern Ireland, will be fast-tracked through the House of Commons.

Legislation that will take the UK out of the EU will be submitted to the House this week for its second reading. This process will be a lot smoother than the previous editions. First, John Bercow, willing to let backbenchers and the opposition control the business of the House, is no longer Speaker and even if he was, the government has enough MPs to control the House’s timetable.

Mr Johnson will want to deliver on his promise of Brexit by January 31. There will then be a year’s worth of negotiating during the transition period, before the UK formally leaves the trading bloc and Brexit is done.

Scotland

As the UK comes out of one union, another could be under threat. The Act of Union was signed in 1707, uniting the kingdoms of England and Scotland. After over three centuries it could be close to its end.

When Hadrian set the northern limits of the Roman Empire, he chose a boundary close near to what would become the border between Scotland and England. England was then very much part of a wider Europe; Scotland was locked out. Into the Middle Ages, though, Scotland would appeal to the continent, the Auld alliance with France, to secure its independence from its more powerful and prosperous southern neighbour.

Scotland being locked out of the EU was one of the major reasons to preserve the union during the 2015 independence referendum. But now with the UK set to finally leave the EU, Scottish nationalists are once again using the ability to keep close ties with Europe as a major argument for independence.

The Scottish National Party won 48 of 59 seats in Scotland. With the strong support for the European Union in the northern kingdom (62% supported remaining in the EU at the 2016 referendum) there will be another push for an independence referendum. Nicola Sturgeon, the SNP’s leader, has also been focusing on the Conservative’s policies and the damage they could do to Scotland.

Another referendum has been rejected by Mr Johnson, but it is a battle that will continue and intensify over the coming weeks and months. How the government deals with the push for another vote will be a major theme of this parliament. One thing is certain though; Mr Johnson does not want the union to dissolve under his leadership. With opinion polls in Scotland balanced on a knife edge between independence and keeping the union, however, it is something that may be beyond his control.

Cabinet reshuffle

A new majority will allow Mr Johnson to shape his cabinet in his image more so than he was capable of in the last parliament. There are already a few positions he has to fill. Nicky Morgan stepped down as an MP, vacating her role as culture secretary. Alun Cairns will also have to be replaced as Welsh secretary and Zac Goldsmith, who lost his seat in Richmond Park, has left the role of environment secretary empty. These positions will be filled in the coming days before a larger reshuffle takes place in February.

So far, only Sajid Javid, the Chancellor, has been assured of his position. Five members of the cabinet have already been identified as under risk of losing their positions. These include Thérèse Coffey, the work and pensions secretary, Andrea Leadsom, the business secretary, Liz Truss, who runs the international trade department, Jacob Rees-Mogg, the leader of the House of Commons, and Julian Smith, Northern Ireland secretary.

Several departments could also be folded into other ones. The Department for Exiting the EU could become part of the Department for Trade while the Department for International Development could be subsumed by the Foreign and Commonwealth Office.

One person being touted for a return to the Cabinet is Penny Mordaunt. She was fired from her position as defence secretary when Boris Johnson became prime minister. But now her loyalty from the backbenches could be rewarded with a return to the big table. Michael Gove is also set to get a bigger role.

Budget

Finally, a budget is expected in February to help deliver on the non-Brexit related campaign promises of the Conservatives. The NHS is set to receive increased funding, to the tune of £34bn, while cuts in the number of police officers are set to be reversed. Austerity meant an axing of 20,000 officers but the new budget may start a recruitment drive to bring those 20,000 back. A pledge to retain and recruit 50,000 nurses will also have to be funded.

A tax cut, by raising the threshold at which people start paying National Insurance, was also a key pledge of Mr Johnson on the campaign trial. The February budget is also predicted to include that. Social care will be funded by an additional £1bn and education investment is set to increase with Mr Johnson having promised to increase the minimum funding per pupil.

MPs return to Westminster on Monday. They will enter a very different parliament than they left. A Conservative majority, the largest since the 80s, will mean that Boris Johnson has a lot more room to manoeuvre. Now, it is up to him to deliver on his election promises.