Strategy Note /

Food delivery apps and the scramble for market share in EM

  • We expect global food delivery revenue to rise at a CAGR of 10% in 2020-2024; the industry would see a 51% increase

  • The fastest growth in food delivery has been in DMs and China, but that is set to change with major expansions in EM

  • We highlight five emerging markets with underrated prospects: Nigeria, Kenya, Vietnam, Indonesia and Pakistan

Food delivery apps and the scramble for market share in EM
Nirgunan Tiruchelvam
Nirgunan Tiruchelvam

Head of Consumers Equity Research

Tellimer Research
4 October 2020
Published byTellimer Research

Technology and innovation have transformed the digital food delivery industry over the past five years, morphing it into a US$110bn business that has reshaped dining habits and disrupted traditional restaurant models. The number of people using digital food delivery has risen from 1.3bn in 2014 to 2.1bn in 2020. We expect global food delivery revenue to rise at a CAGR of 10% from 2020 to 2024. This would mean the industry would see a 51% increase during the period.

Until now, the biggest growth has been in developed markets and in the largest emerging market, China. However, that is set to change, with the ingredients needed for a rise in digital food delivery in emerging markets already in place. Powered by the spread of smartphones, better access to broadband and the creation of delivery infrastructure, our view is that digital food delivery is on the cusp of a major expansion in emerging markets. 

We have chosen five emerging markets with underrated prospects that have not received the same level of attention as the West and China. In the table below, we list the main operators in each country, the industry size this year and the forecast industry size in 2024. 

These are all large emerging markets with populations of over 100mn. They therefore have (some of) the benefits of scale that have enabled operators in China to thrive, but its players have not tapped the capital markets to the same scale and valuation. 

  • Nigeria is Africa's largest market. Although food delivery is the poorer cousin of both e-commerce and ride-sharing in Nigeria, the industry now has revenue of nearly US$496mn – yet it barely existed until five years ago.

  • Kenya: Digital food delivery in Kenya is growing rapidly, and there has been a transformation from R2C to P2C. Like in Nigeria, the market leader is Jumia Food (formerly HelloFood).

  • Vietnam is a promising market for food delivery platforms. There is a long tradition of meal delivery in the urban centres, and smartphone penetration is rising.

  • Indonesia: The industry’s GMV growth has increased eight-fold in the past two years, according to our estimates. And this growth extends beyond Jakarta, where the majority of the country’s urban dwellers live.

  • Pakistan: Digital food delivery in Pakistan is concentrated in urban areas. As with other markets, ride-hailing companies such as Careem have taken a lead in the field. There is vast growth potential because traditional food delivery is still around four times the size of the digital food delivery market. 

A cash-destructive industry 

Digital food delivery is a cash-destructive business. The principal players in the US (Uber Eats, DoorDash, Grubhub) have combined operational losses of US$6bn in the past three years. UK-headquartered Just Eat has lost US$3bn in this period. 

Covid-19 has been a catalyst for the food delivery business, with the pandemic leading to lockdowns in many countries. However, at this stage, the more revenue that the food delivery businesses generate, the deeper their losses. We estimate that Uber Eats has been losing US$3.36 on every order in the US. 

The emerging market food industry is also loss-making and its technology is sometimes lagging. Jumia Food lacks the infrastructure that US-based global player Grubhub enjoys, for example. Also, the companies are under-capitalised. The market remains several stages below the profitability inflexion point. Even Meituan only managed to generate an operating profit for the first time in FY 19. 

Global consolidation through M&A

In the US, consolidation is already underway. Last month, the European leader Just Eat announced a US$7.3bn acquisition of US market leader Grubhub. The combined business will control c60% of the US market. 

In China, Meituan-Dianping is the dominant player, with, a wing of Alibaba, playing second fiddle. Meituan has net cash of US$8.6bn, which places it in an ideal position to expand through acquisitions in emerging and frontier markets. 

Such deals have significance well beyond the developed markets of the US and Europe. Market leaders in the West and China have the cash for acquisitions in the fledgling markets and at the same time, loss-making players are looking to increase scale and eventually turn around. We can therefore expect a series of acquisitions in emerging markets, where revenues are growing even as companies burn cash. We think investors would be well-served to pursue food delivery opportunities in Nigeria, Indonesia, Kenya, Vietnam and Pakistan. 

Who will be the targets?

The firms that are likely to attract the most attention from global leaders are those that are allied to larger e-commerce platforms. These include Jumia Food in Nigeria and Grab Foods in Indonesia and Vietnam. 

These companies are likely to command more attention because they have relatively strong technology, in terms of billing and delivery. Also, the main focus of their parent is not food delivery. For instance, the parent company of Jumia Food – Jumia Technologies (on which we have a Buy recommendation) – is billed as the Amazon of Africa. The controlling shareholders may be more willing to dispose of their interests in what is essentially an extraneous business. 

This is an excerpt of our exclusive webinar on Friday. Watch the replay here.

See our report Food delivery platforms and the tech revolution in emerging markets for an in-depth look at digital food delivery in emerging markets, where we examine the outlook for this evolving industry, identify the key players with the brightest growth prospects as well as potential acquisition targets. 

Related research:

Why profits are irrelevant to food delivery

Delivery Hero's South Korean deal raises prospect of further EM forays

Uber’s appetite for food delivery will go beyond Postmates deal

Nigeria E-Commerce: The route to profit for ride-hailing and food delivery