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.

{audio:0:00:01} How has the French restaurant food delivery market evolved over the last 5 years?

{audio:0:00:12} An interesting development is large retailers coming on board with ecommerce and being more aware of what's going on. Many large retailers have built their ecommerce divisions and tested things, which is a very important step because it makes them aware and open to potential collaboration with any new players coming in. A second wave is the rise of the quick commerce platforms, with Gorillas making the biggest splash in France. Other players include Getir and Flink, for whom France was their first priority.

{audio:0:01:28} What is the market share of restaurant delivery between Uber Eats, Deliveroo and Just Eat?

{audio:0:01:41} Currently, the French market has two big players: Uber Eats and Deliveroo. Others include Frichti, which was recently acquired by Gorillas, and Just Eat which is less important than the UK.

{audio:0:02:13} Why is Just Eat so small in France?

{audio:0:02:17} Just Eat were very successful in the UK because their model works well due to the existing delivery culture of some restaurants having their own fleets. France did not have that at scale in the areas where Uber Eats and Deliveroo were successful. Their product market fit was initially good for the UK, but did not transfer well into France.

{audio:0:02:57} Why is Uber Eats so strong in France?

{audio:0:03:01} Uber have a big ride sharing business that they have obviously leveraged. McDonald's is the biggest fast delivery food market in France and one of their most successful markets globally. Uber Eats developed a global partnership with McDonald's which proved to be particularly successful in France, relative to other markets. That helped them develop, because the McDonald's brand is loved by fast consumers. They have also made a big investment by renaming the football league in France.

{audio:0:04:43} Is McDonald's exclusive for Uber Eats in France?

{audio:0:04:47} No, but in the beginning, it was only Uber Eats, then McDonald's spread.

{audio:0:05:02} Did they have two years of exclusivity to acquire customers first?

{audio:0:05:11} Yes, and that particular move worked well for them.

{audio:0:05:31} Uber had an investor day last month and, in their market spotlight on France, they claimed to have 1.7 times the number of active merchants, relative to their nearest competitor. Is there any reason why that would be the case?

{audio:0:05:55} I am surprised as I don't think there is a meaningful difference in numbers.

{audio:0:06:14} These numbers suggest there is double the amount of merchants which others cannot get?

{audio:0:06:20} Perhaps geographical footprint makes a difference or there's a long tail thing going on, but in terms of the quality of the app for fresh consumers, Deliveroo is much stronger than Uber Eats and that is felt by many customers.

{audio:0:07:10} By gross bookings, most restaurants are exactly the same on Deliveroo and Uber Eats, but Deliveroo currently has a better selection in London.

{audio:0:07:19} It depends on the location so those numbers are not meaningful.

{audio:0:07:46} How can one compete with Uber in France?

{audio:0:07:50} With any large company, you compete with the strength and simply focus on what you do. Uber also has to focus on profitability and meaningful growth, so you have to put your head down and do what you do best, which is very feasible.

{audio:0:08:25} How are Deliveroo positioned in France?

{audio:0:08:37} Deliveroo initially had very high-quality restaurants and were more focused on food as a pure brand. They were first to roll out dark kitchens and Deliveroo Plus. The quality of selection is more important than the absolute number of restaurants.

{audio:0:09:39} What is the mix between chains and independent restaurants in France, at a market level by gross bookings?

{audio:0:09:51} There is obviously a big market with McDonald's and other large accounts, which is probably slightly different to other places. There is also a rise of very large independent chains which are very successful. Poke bowl and Thai chains understand delivery and are going national and are very successful in the areas they operate. There is also the very long tail of larger independent restaurants.

{audio:0:10:57} Five years ago, people said the French would never order online because they prefer to eat in the restaurant and are big foodies, but maybe customer behavior has changed. Do big chains drive gross bookings in France?

{audio:0:11:23} French people are very foodie so you have to work with the right restaurants in the right areas who can deliver that experience. It's about the right burger in the right place, but they differentiate their delivery offering to be successful. French cuisine would not work for delivery so you have to adapt it for fast food.

{audio:0:12:48} What is the biggest challenge to take market share from Uber in France?

{audio:0:13:15} Any company who wants to compete with Uber has to compete with an established brand with an active customer base. Deliveroo is a very established brand whose French marketing pitch is, on s’fait un Deliveroo? which is good for Deliveroo as it's almost a word to say that. To compete with that, you need a lot of fire power on marketing to raise yourself to the same level of awareness, and time, I guess.

{audio:0:14:08} They reported 6% adjusted EBITDA margins, as a percentage of gross bookings for France last quarter; that seems pretty high to me.

{audio:0:14:30} I cannot comment on their numbers but what does adjusted mean? How much is the very large marketing investment they're doing and do they factor in cross-marketing from other platforms. But showing profitability is good for the market.

{audio:0:15:08} I bet this doesn't include above the line Ligue 1 advertising?

{audio:0:15:16} Correct, I would assume not, but they are saying they are having a good run in France and everything is improving. They are also saying there is place to play in this industry which is sustainable, because being profitable is possible in France.

{audio:0:15:47} Did Uber cross-market between rides and eats and is that effective?

{audio:0:16:00} Several years ago, they merged their apps, which is huge. Now there is a pop up in the beginning of the funnel where consumers choose between ride and eats, so they made it front and center for ride customers that they also have eats offering. 

{audio:0:16:55} Do their drivers do both or are they different driver sets?

{audio:0:16:59} No, they use different drivers as it is different markets.

{audio:0:17:07} In the US, some rides drivers would do eats runs during peak times.

{audio:0:17:18} It is very unlikely that was scaled up as those are different markets with very different needs. Some riders can do it in some markets as top-ups, but that would not work in France because there are regulations which govern ride share drivers.

{audio:0:17:48} What will the state of French rider/driver regulation be in five years?

{audio:0:18:09} I cannot predict the future but there is a healthy market for riders and drivers which works well in France. Many people are happy for the opportunity they get so it's about finding the right balance between regulation versus not. The only question is how and when and to make it successful, but for me it's clear it is here to say and is something which both customers and riders/drivers love.

{audio:0:19:25} Would this break the economics of Uber in France if government says they have to be employed, or will it entrench them further as they have scale?

{audio:0:19:39} I cannot comment on this as it is very hard to tell.

{audio:0:19:53} When did you first see the quick commerce players enter France?

{audio:0:20:02} The first ones entered one and a half years ago with Gorillas, whereas Getir and Flink came to France from other geographies.

{audio:0:20:47} How do you compare their model of small fulfillment centers with 1,500 SKUs and less than 15-minute delivery with partnerships that Uber run? How do you think about their models?

{audio:0:21:20} They have dark stores and do their own picking, procurement and delivery. They rent expensive real estate in the center of cities but what is more interesting is how different they are compared to existing grocery models. They have 2,000 SKUs which is small compared to supermarkets which have 15,000 to 20,000 SKUs. They have their own picking whereas most delivery guys do not. They have their own procurement similar to larger players, but delivery is the biggest difference. Most players pool several orders into large trucks whereas they do single deliveries with their own electric bikes. 

{audio:0:22:56} To be successful in retail in general, you need low prices, otherwise you cannot scale. You need a high basket value with several items to make margin to pay for all the costs. You need a reasonable time to deliver and the ability to pool orders, which is difficult. Gorillas are currently offering price matching and I find it hard to believe the purchasing power of Gorillas would be on par with large retailers. At scale, there will be much more collaboration, which we've seen happen between those players and the large retailers.

{audio:0:24:25} Do they mainly offer private label or branded products?

{audio:0:24:30} They have partnerships with large brands.

{audio:0:24:39} They will partner with Carrefour and offer any of their products. Basket values are a challenge because they cannot physically fit more than X items in a box. That limits the type of assortment so you cannot deliver toilet paper or bottled water. There is also the question of reasonable time, so you have to pool the orders.

{audio:0:25:42} How important is it to pool orders?

{audio:0:25:47} It depends what level of margin you want to make. Either you have a high level of density or you cut down your costs by pooling your orders, and a high density of orders will only be feasible in few locations.

{audio:0:26:40} What is the average number of restaurant orders you can pool?

{audio:0:26:48} You can typically pool two restaurant orders, perhaps three.

{audio:0:27:06} Because you have the density and can deliver within 30 to 45 minutes?

{audio:0:27:12} Pooling two grocery orders is different from pooling two restaurant orders.

{audio:0:27:29} Because of the volume and size of the products?

{audio:0:27:33} Getir has an average order value of $15 to $20.

{audio:0:27:41} How profitable is that $15 to $20 order and what AOV do you need to be profitable? Bain looked at the average basket size needed to break even based on the number of deliveries you will do, and they came up with €30 to €40 minimum.

{audio:0:28:46} Many people I've spoken to mentioned the gross profit per order, which is GMV minus product cost – excluding picking and delivery – is 50%.

{audio:0:29:10} I find it hard to believe they are able to achieve 50% gross margins.

{audio:0:29:26} I thought they were mainly doing private-label items and fresh?

{audio:0:29:35} I don't know how they could achieve higher gross margins than retailers.

{audio:0:29:54} If I opt for quick commerce via Uber Eats who partner with Carrefour, two players take a margin, but do Gorillas also go direct to suppliers?

{audio:0:30:07} Clearly, they have a grocery where they go direct but that would assume they would get a better deal than Carrefour.

{audio:0:30:38} No, because Uber and Carrefour still take a margin if I order on Uber?

{audio:0:30:46} No, I mean gross profit, if you look at the procurement side of Carrefour.

{audio:0:30:55} I am talking about the gross profit of Uber Carrefour Sprint. If Getir and Gorillas can go direct to suppliers and procure at scale, being vertically integrated could be cheaper for similar products than going through Uber?

{audio:0:31:44} No, because a large retailer like Carrefour would always be better at buying than Getir or Gorillas. The question becomes what deal you can strike with large retailers to offer an end-to-end proposal which is attractive to customers? My understanding is that they are able to make it happen with that model.

{audio:0:32:22} If Uber wants Carrefour's quick delivery business, what relationship would they have?

{audio:0:32:33} I don't know what the numbers are but it's similar to the restaurant model where they have a shared basket.

{audio:0:32:55} A $20 average basket size and a $2 delivery fee from Getir or Gorillas comes to $22 GMV. They have a 30% gross margin similar to a supermarket, and I have heard that the pick is effective because few people are in the store picking and can do up to 10 orders per hour, which is $1.50 picking cost per order. How do you look at the picking cost?

{audio:0:33:48} Picking costs are dependent on basket size. You can take five minutes to pick an order with a few items, but for bigger basket sizes that goes up dramatically. The picking time for a €20 order would probably be five or six minutes.

{audio:0:34:26} If you are doing 10 or 12 and paying them $15, that's $1.50 per order?

{audio:0:34:42} You are assuming you will get five orders without lag. 

{audio:0:34:58} Otherwise this model doesn't work.

{audio:0:35:02} Yes, but it's important to know that because the demand is not flat during the week or day. The peak levels in the model are when people order and eat. That model at scale, with the level of density and promise you have, is very challenging. What is Gorillas doing that retailers are not? They pay rent so have to amortize 100% of it on those orders. I would assume rent is more expensive because it's more central. There is a delta on picking because most retailers would not pick. There is also a delta on the delivery but the average basket size is not huge. All of those collectively make it challenging at their current valuation. This model can work and the way Deliveroo is doing it is quite smart. They partner with retailers to benefit from their buying size and also leverage their delivery network. In that case, you no longer rely on one segment to be dense and profitable, but bring two strong players together. I don't think one player can capture the grocery delivery market share they need, knowing how limited they are with access to rent, ability to scale order size and the required density.

{audio:0:37:52} Deliveroo in the UK partner with Morrisons for on-demand delivery. Do they ship from French supermarkets or build dark stores with 2,000 SKUs?

{audio:0:38:15} In Italy, they partner with retailers to build a dark store, so it's like Gorillas.

{audio:0:38:40} It's like Gorillas but do you share the capex with the retailer?

{audio:0:38:45} You are doing something similar to Gorillas. I would assume you would use your delivery network and the buying power of the retailer to make it more effective. I don't know how they share capex because you could do it from existing retail locations.

{audio:0:39:11} How will delivery be more effective if you only deliver one order?

{audio:0:39:18} They have an existing network so it doesn't depend on only one order. My point is that you have access to something which already exists, and is simply slotted in. That has been going on for years and has proven to be profitable, so that's not an issue.

{audio:0:39:41} Did drivers switch from Deliveroo and Uber to Gorillas and Getir?

{audio:0:39:51} That was not a big trend.

{audio:0:40:04} Who becomes a Gorillas rider versus a Deliveroo rider?

{audio:0:40:07} Many people want to become riders and choose one which fits their needs. They have a different model which many people will dislike because it is less flexible. Many of them are employed which makes it less flexible due to the times you work and the fees you can get.

{audio:0:41:12} Are they employed and have to meet 15 to 20-minute delivery times?

{audio:0:41:20} Just Eat recently announced they want to have employed riders in France. Many riders are not attracted to that model in terms of hourly fees and no flexibility.

{audio:0:41:49} What is the industry-average hourly cost of a rider in France?

{audio:0:42:19} The official number for Deliveroo in France is €14 per hour.

{audio:0:42:40} Paying someone €15 who does four deliveries an hour at max density, still works out to €4 per delivery, plus $6 to pick for convenience delivery, which is quite expensive.

{audio:0:43:19} That is why you need larger basket sizes to have good profit margins.

{audio:0:43:36} That is difficult to deliver big-volume items on the back of a bike.

{audio:0:43:43} Quick commerce is trying to get everything at once. They want the same prices with lower gross margins and quick delivery without pooling of orders. To make it work at the scale they are saying is the biggest question because something has to give. Either they have to increase prices and lead times or change vehicles and pool orders.

{audio:0:45:06} How do Deliveroo and Uber protect against Gorillas and Getir? They are currently testing grocery and quick commerce delivery models.

{audio:0:45:16} They need to focus on their core business of restaurant deliveries, which is successful and good to build on because it gives them density on the networks. They need to get into quick commerce but not as capex heavy as Gorillas. Collaborating with retailers is very smart because the retailers are the key to making it work eventually.

Online Food Delivery in France: Deliveroo, UberEats, & Gorillas

Former Director at Deliveroo

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Online Food Delivery in France: Deliveroo, UberEats, & Gorillas(April 1, 2022)

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