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Amazon's $575 mn investment delivers a $1 bn blow to food delivery sector
Posted on 20th May 2019
In a market that took a breather after China played hardball on trade and talks on Brexit hit a dead-end, one sector got hot again: food delivery. But Amazon’s decision to take the lead in a $575 million funding round in British startup Deliveroo wasn’t welcomed by all investors.

The news plunged the sector into turmoil, as the three major Europe-listed players -- Just Eat, and Delivery Hero -- had the better part of $1 billion of their collective market value wiped out. It doesn’t necessarily spell trouble for those players in the long run, though.

“A bounceback is on the cards -- after all, the others aren’t going away, so Just Eat etc., will be looking for investment now, too, in order not to be left behind,” wrote IG Group Chief Market analyst Chris Beauchamp in an email. “The sector has plenty of room for growth, so the race is on to see who can get funding next.”

The hit was still sizable, and those stocks already have a large short base, which is something to keep an eye on.

The concerns about the risks to Just Eat’s model are overdone, Liberum analysts Ian Whittaker and Harry Read wrote in a note to clients. Market leadership is vital to attract advertisers and customers, and in the U.K. Just Eat has an estimated three-to-four times greater share than Uber Eats and Deliveroo combined, they said. Just Eat’s local presence - over 60% of its customers are in small towns -- is also an edge.

Liberum goes further. Market leaders such as Just Eat, Delivery Hero and are likely to become takeover targets themselves, as trying to grow organically in those businesses makes little sense and can lead to significant losses, they said. US peers Uber, GrubHub and DoorDash are cited as potential suitors, while Amazon or Naspers could also make a move.

Amazon likes a good disruption and they previously entered another market with a bang when they bought Whole Foods. The move had a knock-on effect on grocery retailers in Europe, but fundamentals prevailed fairly quickly after the initial hit.

All that said, while Amazon’s ultimate plans remain unknown, the move is still important, as highlighted by Bloomberg columnist Alex Webb. It allows the online retail giant to re-enter the food-delivery business after it shuttered the London operations of Amazon Restaurants last year, and gives access to a new network. It could also be a way to broaden its expansion in European food services in Europe.

In the meantime, Euro Stoxx 50 futures are trading little changed ahead of the open.

Related Companies: Amazon India   

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