Undercooked

Meal delivery companies, such as Deliveroo, Just Eat and Uber Eats have become a big part of everyday life. But is the bottom about to fall out of the market?

Delivering meals to the door is big business

Recent research by Food Standards Agency shows that over half of respondents in England, Wales and Northern Ireland (55%) have used an online meal delivery service with one in five of these (22%) doing so weekly.

The UK food delivery market (which includes restaurant and meal kit delivery) has experienced rapid growth over the past few years. The growth has been driven by changing consumer behaviour in the pandemic and technological advancements. Currently worth around £11bn per year and, according to Statista, it is expected to be worth approximately £12.5 billion by 2024.

The market is highly competitive with many people using more than one provider. A survey conducted by Savanta in 2021 found that 35% of respondents used two or more food delivery platforms. Our own research into meal kit providers shows that customers are willing to try multiple services to find the best fit for their needs. Switching between companies is common.

Can the remarkable growth of the online meal delivery companies carry on?

Consumer demand is coming under huge pressure as the costs of food, energy and housing increase. Recent ONS data shows that 43% have been cutting back on food and nearly two-thirds on non essentials as a result of the cost of living crisis.  This is already having an impact on demand for food delivery services with a reported 12% decline in orders in January 2023 compared with January 2022.

Not only are the delivery firms being hit by consumer cuts, they are also being hit by increasing costs to their business - ingredients, fuel and energy prices have sky rocketed over the last year. Absorbing these will put a strain on profitability. Passing on the increases to the consumer could further dampen demand.

We can see the result of the fierce competition and difficult trading conditions by looking at recent performance. In March 2023, Just Eat reported a five-fold increase in worldwide losses in 2022 to €5.8bn (about £5.1bn). It has also sacked 1,700 of its delivery workers and reverted back to the 'gig' economy model that they ditched in 2020. Incidentally, they ditched the gig economy model because they said it was bad for workers so reverting back to it is unlikely to be popular with delivery operatives.

Deliveroo has also suffered in difficult trading conditions. In Q1 of 2022, delivery numbers were up by 19% but by Q4 they had fallen by 2%. Although the value of all transactions grew by 9% in 2022, this compares poorly with a 67% growth in 2021. Analysts believe that Deliveroo will make 9% of its staff redundant in order to control costs and is unlikely to see a profit before 2025.

Food delivery fights for survival

These are troubled times for the sector and a perfect storm of flagging consumer demand, lack of loyalty, increasing business costs and investors impatient for profit will make it a real fight for survival. Don't be surprised if there are consolidations in the market and casualties along the way.

The fight for survival might also speed up some of the changes in the market that we are already seeing. Things such as:

• Increased automation so that food is cooked, packaged and delivered with minimal human involvement.
• Greater use of technology to speed up logistics, distribution and route management.
• The use of AI and machine learning to generate predictive menus displaying meals that an individual has the highest probability of buying. This will cut down waste, speed up fulfilment and optimise sales.

AI will also source the optimal provider or delivery hub based on current workloads, distance and previous performance. In the not too distant future your takeaway might be delivered by a drone from a fully automated factory producing and delivering meals 24/7.

The problem for the likes of Deliveroo, Just Eat and Uber Eats is that all of the above costs money and takes time. But time and money might very soon be off the menu.