Elmenus & Egyptian Food Delivery

Disclaimer: This interview is for informational purposes only and should not be relied upon as a basis for investment decisions. In Practise is an independent publisher and all opinions expressed by guests are solely their own opinions and do not reflect the opinion of In Practise.

Amir, can you provide some context to the Egyptian online food delivery market in 2011, when you started your business?

It was a whole different story in 2011. There wasn't an online delivery market in Egypt. Up to then, most orders were made on the phone, but the delivery market in Egypt is super mature. Restaurants have their own fleets and logistics teams, so they always deliver the food themselves. I think McDonald's in Egypt was one of maybe three McDonald's in the whole world to deliver when they started in the early 1990s. It was already a pretty mature delivery market.

In 2011, there was improvement in the online penetration rate, but it was still very early. Today, we're seeing around 7% of all deliveries happening online, and that number is increasing rapidly. It grew more than double in the past year alone. It will keep increasing because restaurants are getting educated, users are adapting to the online experience, and platforms like ours are investing a lot into the market.

Why do all the restaurants have their own delivery?

This relates to Egypt generally being used to ordering things conveniently at home. Getting a delivery guy or a couple of guys to work for the restaurant wasn't that big of an investment from their side. Overall, Egypt is infamous for having a lot of traffic, and nobody wants to go and pick up their orders from around the corner or drive to a restaurant, so I think that also helps. Traffic is a big angle for it; second would be labor cost, and third is the fact that Egyptians love their food, so we typically order a lot.

How would you describe Egyptian consumer behavior versus a typical Western, US, or UK consumer?

The consumer in the US or the UK is, by now, very used to ordering food online. People can order their food and groceries up to three times a day, and all your frequencies are higher than Egypt. To a very large extent, that relates to the fact that the market is still in its early days, in terms of being online. We've seen frequency increasing on the platform year over year, by the restaurants getting delivery experience, us becoming more efficient, prices going in a downward direction. Overall, the whole delivery experience makes you think about whether you want to cook or not because food is available and comes to you quickly enough. That behavior is changing, but the frequency rates are much lower than in the US or the UK.

What is the average order frequency in Egypt? I’m looking at Deliveroo now, for example, and they‘re doing an average of three times a month.

It would be higher than three per month Egypt today.

Roughly how many online orders are there today, in Egypt, as a market?

It's around 7% of the current delivery numbers in Egypt, which are around one million orders per day.

One million orders per day is the total market.

Yes, and 7% to 10% are being done online.

So the restaurants are just delivering everything?

Yes, restaurants deliver 90% of orders.

How are restaurants evolving in the way they look at online versus phone orders?

There was resistance to shift to online since the restaurants are already doing it on the phone and their customers call them. Since the day we launched, we've witnessed a lot of resistance from even big brands, and we've probably seen these trends happening and rolling out everywhere in the world. But over the past two to three years, that mindset has changed dramatically. They understood the efficiency that online platforms could bring to them. They understood they could get better insights through data on performance and SLAs when they shifted online, which led to a better customer experience and more orders. The education became accelerated, and I would doubt right now there is any major restaurant that has not adopted online ordering to a large extent. Currently, it's more about platforms and restaurants working together and figuring out how to bring up the experience to a much higher level, to where it is in more developed markets.

It's almost like Egypt is the reverse of what we have in the west, where it seems like in the UK and the US, all the restaurants were coming online to offer delivery because they never offered delivery before. But in Egypt, all the restaurants already offer delivery, and you are trying to transition them to going online. What's the value proposition, given that the economics is probably higher for them when they own the customer and deliver themselves?

It’s two-fold. One is the proposition that the experience is better for the user, so the users are the ones who flock to the online ordering experience, which means restaurants need to be there to help cater for them. It's one of growth; if they weren't there and this was the trend and everybody was going into that direction, they typically lose customers and lose growth. Some of the restaurants that were very resistant have seen that happen to their numbers. When they adopted too late, they found that the neighboring restaurant took up some of their market share. That's one part. The user drove the trend in that direction.

The second part is that, even if the economics on the phone might have been better, visibility on the performance, experience, and customer journey is much better online. Because we're aware that restaurants are not going to accept it for that alone, we've developed and are continuing to develop a lot of tools for restaurants. We help them with many insights that can help them understand what their best-performing dishes are, what locations are the best performing, and other things that will help them compete in the larger market. Restaurants face many problems and challenges, and they need to make the best of their online presence. We're very aware of that, and we're investing in many tools to support them with this.

In the US, for example, Shake Shack and Chipotle are trying to convert their customers from Uber and DoorDash to their own channels. How do you foster that different relationship with restaurants in Egypt, so you're partners instead of effectively taking their economics?

If you mean, what's our position for restaurant chains who maybe do a private label or their own restaurant platforms, I think it's not a bad idea if they can pull it off. There are high technology and marketing costs for such apps if they do it on their own. They need to invest a lot of money in technology, team and resources to get that going. The chains that have had success with that globally are the ones that are really big and have a very, very loyal customer base. Typically, those are the users that would use their own restaurants' apps.

But in Egypt, the restaurants that tried to do it had very, very low adoption. I think the value proposition of being on an aggregated platform is high. That doesn't mean we should take it for granted. Globally, I've seen aggregators be very arrogant around the fact that restaurants will have to flock to them anyway. I think aggregators and platforms need to continuously invest in tools to help the restaurant realize more value, challenge themselves, and scale and operate a better business, not just increasing commissions and taking their whole value proposition for granted.

You mentioned the 7% of the 360 million orders per year is online, so let's say 25 million. Is that from marketplace orders? What's the mix between marketplace orders and you or Uber delivering?

It's heading in the direction of around 50%. It's not there yet, but it's heading there. That was also because a much lower number of restaurants had their own delivery set up, and when Covid came, that number accelerated dramatically. In our case, we've seen more than three to four times growth on the penetration of fleet versus marketplace. The restaurants realized operating their whole delivery operation at scale, without the technology, provides a poorer experience and is very hard to manage. When the lockdowns happened, and people were forced to do layoffs, they all figured, let's just outsource this whole operation and not have to deal with it. This was really when the acceleration started happening.

How do you see that mix changing between delivery and marketplace orders over the next five years?

In my opinion, a very small percentage, only the big chains, will be doing a marketplace setup, but everyone else will convert. Because of the economies of scale, the efficiencies given by technology and everything else will be commoditized to the point that there will be no advantage for restaurants to have their own delivery operation.

We can talk about delivery in more detail in a moment, but what was the original founding idea, back in 2011?

It was purely around the problem of deciding what to eat. It's what we call a very expensive problem. It's a global problem; everybody asks that question every single day, three times at least. We figured this was a big enough problem, a very open-ended problem that we could keep working on forever. The selection, of course, keeps increasing year over year, so that amplifies the problem further. That was the idea behind founding the platform.

The beauty of it was that we kept evolving our solutions to the problem. First, we had the insight that we needed to collect all the menus of all the restaurants in the country. The second insight was that people are not only concerned with where they want to eat, but they also want to know what. So even if they know the restaurant, they still want to know what kind of dishes are most relevant for them inside that restaurant. We've invested all of our efforts in making the whole experience very dish-centric. We've collected photos for most of the dishes on the platform, we've enabled ratings so that people can like and dislike dishes and that was something we did back in 2011. We're working on personalizing all of the data right now and making it more relevant for each and every user.

So in the early days, it was just a review system to view stuff; you'd click through to the restaurant to call them up and place an order?

Yes, in the early days, it was like that. You could check out the menu of any restaurant, and you could figure out where the best dishes are.

How did you look at launching food delivery a few years ago?

Back then, it was not a big enough opportunity, but users started asking for the feature. We figured out that the wave was coming, and people would start to want to order online. At the same time, VC funding was not a thing in Egypt, but it became more prominent around 2016. With all those things happening together, we got our first funding in late 2017, and with that, in less than a year, we launched the whole online ordering operation.

How did you look to differentiate the offering versus Uber or Delivery Hero?

We knew the experience was broken in Egypt back then, and restaurants would not focus on or understand how to deliver a good experience online. We did a lot of the groundwork that needed to happen by meeting the restaurant owners personally, creating WhatsApp groups, and being in heavy communication throughout the day to tell them this order messed up. This delivery driver from your end is showing up late to the customer. We were trying to provide insights and data to the restaurants all the time. This kind of close engagement made our experience competitively better.

We also developed many tools and automation to ensure that if any order got messed up, bells and whistles would go to the restaurants to alert them and our internal team. Knowing that people who are used to calling the restaurant would expect to have more of a high-touch engagement with some sort of customer support agent, we invested a lot in customer service. We did not hold back there and invested very heavily. At the same time, we focused on being true to our core value, helping people decide which dish they want to order; we always invested in it.

The reviews and the UI encourage people to see what the best dishes are when they land on a restaurant on the platform?

Exactly, and right off from the discovery side, if you want to see the best burgers in your area, you get pictures of all the burgers; not of the restaurant but the actual dishes. This is something we've continuously invested in.

Do you think that’s an important differentiation point versus Uber and the other players?

It's not only an important differentiation point, it also sets us up for many more things to come. We believe that the experience should be this place that helps you with indecision, and we take it a step further to make it a very social and personalized experience. We believe food is very subjective, and it's very personalized to every person's taste. It's similar to how the music industry has changed. Spotify and similar platforms have made a lot of effort to categorize music and make it a very personal experience. The de facto way of discovering music is now going on Spotify to check out the feed and learn more about your taste and what you like. The same thing will happen to food, but the very dry experience typically there does not make eating out fun.

It’s almost like you’re building Spotify playlists.

You can think of it like that. You can think of it as a total discovery platform that has social and personalization elements in it.

What do you think drives retention in the long run?

A lot of things. One is that with a free platform, we understand that it needs to be comprehensive. It’s not only being used for delivery; it should also be used for dine out. If you have a comprehensive platform that has all the restaurants, regardless of whether they're dine out, pick up, or delivery, that increases the users' frequency of accessing the app and hence relying more on it, which also drives better retention. On the other side, the delivery experience and the economics of what the customer pays on delivery fees, offers, and promotions, or loyalty drive much better frequency and retention on the app.

Again, you're competing not only with other platforms but the users' normal behavior to open the fridge sometimes and cook or go to the grocery and get a nice quick ready meal. The better the experience is, the faster the delivery times, the bigger the selection of the offering, and the more users will be retained on the platform. At a certain point, people will cook much less because they can access very convenient good food.

This is, I think, one way to increase the frequency and the retention. The second, of course, is the app provides more of the services that the user needs to get delivered. Grocery is one part and then there are all of the dining needs the user has.

What’s roughly the market share in Egypt today, between the three players?

It's mainly two players, it's us and Talabat, the Delivery Hero-owned company. I can't say what the market share is, but we're definitely the second player and growing at a very fast rate.

Over here, we have three big players in the UK, which makes life quite difficult for pricing and promotional activity. How has pricing evolved in Egypt?

You mean pricing for the delivery fees?

Yes, like promotion and the average order value; how has discounting evolved?

Promotions are still very prominent in the country, and it's not just because there is competition. It's also because we compete with the users' behavior, which is traditionally to use the phone. To grab the user, we want to entice them to do more orders and acquire them over the platform. This is why there are still a lot of promotions being driven in the market. Delivery fees are constantly going down with better efficiency and better experience, so the trend is both are going down dramatically. For example, as a company that's in what we believe is a very early stage in the market and the company's lifetime in this industry, we've achieved positive economics in the last month. That says a lot about how the economics are getting better.

How do you describe the differentiation between Delivery Hero and Elmenus?

In this whole market, some companies are purely logistics companies. They are in the business of delivering anything to anyone. They have a huge logistic engine and capacity, so their differentiation was to deliver food, deliver groceries, deliver anything, and keep expanding the categories that they deliver. But then there are the kind of platforms, similar to us, which are discovery platforms, focusing more on providing better experiences. They focus on foods for the restaurant and the user. We are, for example, focusing on solving the challenges for the restaurant such marketing and helping them retain customers, getting data around what they do, extending that to more services and products. For example, by giving them loan facilities to grow and buy equipment, and so on. This is a huge thing. We're offering more services for the restaurant and the user, enabling them to do contactless ordering inside the restaurant and getting into loyalty programs; this is also very specific to food. I think the differentiation is clear. Some platforms are just going to deliver anything, and they'll be good on that front, and there are platforms, like us, that are concerned about the whole food experience for the restaurant and the user.

What are the biggest challenges for restaurants recruiting customers today in Egypt?

The challenge has been enhancing the experience. We're educating the market and growing it, and investing in it heavily. It's all rolling beautifully together. On the one side, the restaurants are paying attention to online platforms as the share of orders they receive through us is increasing. They're paying more attention, they want to invest more, they want to provide a better offering for the customers. On the driver side, this is becoming one of the main sources of income for a big population of the country. This will keep growing.

They're also getting educated; they want to understand how to provide a better experience and understand their incentives to perform a better and quicker service. From the user side, they're also adapting to the idea that the online experience is better than the phone. It is like a flywheel of a better experience throughout, and everybody's incentivizing to grow the industry together.

Can you explain the typical restaurant in Egypt? What's the rough mix between chains and independents?

The independents in the country are growing massively and taking up the biggest share of what the chains used to make. I don't have exact numbers, only a very rough idea, but I would say it's a fragmented market.

These independents, they maybe have a couple of family members doing delivery, relatively small restaurants. Could you describe these types of independent restaurants so we can get an idea of who you’re offering?

Yes, it can get down to that scale where they would get maybe family members or young workers to do the delivery for them. Still, the typical thing is they would hire delivery workers, maybe have two or three people sitting in front of the restaurants waiting for orders. It's a bit of an inefficient, not very technology-driven operation. Of course, the chains would have much larger fleets.

What’s the typical average order value in Egypt for online food?

It's around $10 to $11.

And that’s excluding delivery fee?

No, that includes delivery fee.

How much is the delivery fee?

On average it’s almost $1, maybe a little bit less.

What’s the regulation in Egypt for delivery drivers?

The market is not heavily regulated like in the west, and basically, it's a purely gig economy. There's no set minimum wage, it's not unionized or anything, so it's still a very unregulated market. But it's almost informally regulated. People pay fairly for the drivers, and they ensure they get better economics. Because the market is competitive, the delivery drivers end up making good money.

If it’s 80 cents per delivery, how many orders do they do an hour, on average, for a restaurant?

I can't say the exact number, but it's definitely more than one.

Do you manage your fleet internally, or do you outsource that to a management company that manages the drivers?

A huge part of our investment is on a big technical team focused on optimizing all of the technology and the whole operation. We use a lot of machine learning to make predictions and figure out the most optimized way of operating the network. Basically, we hire gig workers, and some of our drivers are hired on the payroll. This is done so we have better driver retention rates and better stability in the network, especially with seasonality and holidays. We do a mix which is not very typical in the industry.

So the other players, Delivery Hero, mainly use gig workers only.

I can't speak to what they do, but the common thing in the industry is that people only hire gig workers.

What’s the average take rate in Egypt?

It's around the 20% mark; 20% to 25%. A bit lower than the typical 30%, or sometimes higher, which is what we can see in the US.

Why is that?

I think it comes from the fact that most of the restaurants already had a delivery operation running. Also, because the delivery fees are lower in the country, as you can see, it's almost 10% of the total order value. Other countries could go up to 20% to 30% of the order value. That also drives down the commission.

It seems like a healthy contribution margin. Let's say 20%, $2, $1 fee; it’s higher than the UK right now because of all the promotions here.

Especially because the whole delivery operation is much more expensive to operate in any other country in the world. In Egypt, again, because the labor costs are lower and the market is mature, and there are tons of drivers looking for jobs, it's attractive on that front. Economics-wise, the only costly thing is the incentives needed to pay to acquire the users and keep them on the platform. But again, as we've seen with the positive economics that we have, those numbers are going down.

What about the drop density in Egypt? Here in the UK, two to 2.5 is the break-even rate with a fixed labor fee. How is it different in Egypt?

It's definitely heading towards those numbers, as well. We see that those denser urban areas have better utilization rates than the less dense areas. Most of the operations are very urban; it’s not suburban. Those numbers are getting better by the month.

How do you see the economics evolving over the years?

We believe that, as a company, we're heading towards being profitable on the company level, and we think this will happen very soon. Our first milestone was to achieve positive economics. This is something we celebrated in the last couple of months, and we see that, within the coming year or two, we'll be seeing positive numbers on the overall platform. I think the exciting thing is that, against a lot of the industries known for being a very cash-burning industry, we believe that there's a way out of it.

Let's say you have $1.5 to $2 of contribution profit per order, which is kind of similar to what you can get here without the discounts. What do you focus on to drive that contribution profit per order?

It's the acquisition cost and the retention cost. We are focusing on these two factors to drive down the numbers. Of course, also increasing the efficiency of the fleet network, with technology and investing a lot in machine learning data, and on the other side providing more value for the user, so it doesn't just become incentives and not gain. Users respect that. When you get a better experience, retention goes up to a big extent. When we provide more for the user, which we invest in on the platform, the user behavior changes. They rely more on the platform for all of their dining needs throughout the day, and this is where we believe our biggest value proposition will increase over time.

That take rate of 20% to 25% is for delivery? What about the marketplace orders?

It's almost half, so you would expect an average of 10%.

It's roughly 5% lower in Egypt versus the UK and the US, which seems to be because restaurants have delivery and relatively low delivery cost.

Yes; the other thing is that, of course, the value proposition in the UK and the US is different, and many restaurants are not delivering. It's not only that they're getting additional customers but that these are not customers they would have had anyway because they don't deliver. I think the value proposition is very different, and a lot of the older restaurants in Egypt, even before delivery platforms, were already split between delivery and dine-in. Before online platforms existed in the US and the UK, that number was purely pick up and dine-in.

Moving on to look at grocery, how is convenience in grocery delivery evolving in Egypt?

It's still very recent. We are in the very early stages. Penetration of grocery delivery online versus offline is very, very low; this wave almost didn't happen at all, so it's mostly offline. That was also because it was very easy for you to just go to the corner shop and grab your groceries or go to the convenience store. This is also going to change because they will find that the experience is much faster online, and they're going to find a good selection they can have access to very quickly instead of going through the aisles and looking for what they want.

In the same way food delivery changed, that wave will also come in and change many things. We already see small signs that this is where it's going to go, and when you see other countries that have the same dynamics as Egypt, such as Turkey for example, it's booming right now. So we believe that the same wave is going to happen here.

So why is Egypt only 7%?

The whole digitization and a lot of the online ordering platforms that came in, came a little bit late. There was only one platform for almost 17 years in the market, and it didn't offer the best experience and wasn't run in the best way. When the market became a bit competitive, we started competing, and other global players started coming in; the whole story changed, and acceleration started. But for a very long time, there wasn't a very strong ecosystem in Egypt for technology companies, nor the whole restaurant industry. That changed over maybe 2015 to 2020.

When you look at the grocery or convenience delivery business, how do you think that impacts the food delivery flywheel?

It changes users' frequency and retention because they rely more on the app. More importantly, the efficiency of the delivery network improves. Also, the drivers' economics and earnings start coming up, and the price for the users starts coming down. I think the only bad thing is, sometimes, the experience gets too busy for the users. That's what we hear as feedback all the time. Some users prefer to have two separate apps, one purely for grocery and one purely for the whole restaurant and food dining needs.

How do you think that’s going to change in Egypt, with regard to the consumer preference of having one or two apps?

I honestly don't have a clear idea. It's purely up to the apps. If the app can be simple and useful enough for the user and has both options, it can work well. From what I can see now, this is not happening. With the apps that came to be super apps or have a lot of stuff going on, it's a distracting experience. As a product person, I think that affects the conversion funnel in a poor way.

Can that be solved? Definitely. We've seen markets that have had this experience of being more streamlined and being much more efficient. It's just a challenge for the user experience to be very simple and streamlined, but I think many people have successfully done it. The important thing is that we, as a platform, for example, do not lose focus on the actual challenges facing the users and the restaurants. If we take care of those, the industry jumps up and accelerates further versus just treating the restaurants as entities that need delivery drivers, and that's it. They have more challenges than just purely delivery.

In the UK, for example, it seems they were focused more on the food and restaurant side. Then Deliveroo and Uber started to integrate the grocers, and Just Eat was eventually forced to offer grocery. Do you think there will be a convergence to both offering convenience, grocery, and food delivery in the long run, or can you get enough scale just as a restaurant food delivery business?

I think you can get enough scale for sure. I don't think one model is right or wrong; I believe it's purely how you do it. Again, if you can figure out how to have both services on the same platform, without losing focus on one of the stakeholders, that works perfectly. We've seen – which we don't want – more platforms coming in and taking the focus off the restaurants or the users that are dining in, and instead focusing on convenience stores or other things that take away from the challenges that we can solve for the restaurants and users.

You have 7% online ordering today. What do you think it would be in 2030, in Egypt?

In 2030, I definitely want 80%. I think the whole market will be online. I doubt there will be any offline component in 10 years. This will become a thing of the past, and we're going to figure out the next problem to solve. It won't be whether or not we need more online penetration. The next problems that we’re going to solve will be purely focused on better quality, selection, and the discovery problem of, what am I going to eat today using a very personalized angle, stronger machine learning, and stronger investments into technology. It's going to become a very exciting experience. Delivery will be commoditized and become much faster; you can get whatever you think of in a very short amount of time. Of course, the kitchens and the restaurants enhancing their operations will be driving their selection with data that are available in the market, and they're going to meet user demands very quickly. It will be an exciting time to live.

Do you have an estimate or a target that you think, at scale, if there are only one or two scaled players of gross profit or contribution profit per order would be? At Just Eat, for example, they have a long-term margin of 3€ per order. Do you have that kind of target in the long run?

We do, but nothing so specific that we can share it out in the open. It would be a very specific piece of data to share.