Note: I have no insights on how the two services are performing, as have I shared main part of the feedback and any bugs found with Deliveroo prior publishing this. I’m making generalization with Berlin as the German market, acknowledging that each city strategy needs to be adjusted. I’m also randomly, and without any affiliation, using restaurant Bun Bao in my examples.
“A food delivery or valet company that is the go-to place can charge higher prices to diners and also demand higher commissions from the restaurants. In order to get to this hallowed position we think that a networked business needs to have 60% market share or be double the size of its next competitor.”- Edison Investment Research
Investors are looking for global market leaders, why the most common phrase you as a startup will hear is “You need to think globally from the start”. This leads to a high pressure to grow fast into new markets, why I’ve chosen to look at on-demand food delivery services Deliveroo and Foodora on the German market to illustrate the challenges of internationalization in a fast moving and fiercely competitive market. You know on-demand food delivery business is on fire when an investor of a delivery service is asking its competitors about internationalization and go-to-market strategies 😉
To better understand the growing delivery market, I highly recommend to watch and listen carefully to Sonali De Rycker of Accel Partners, investor in Deliveroo, Bastian Lehmann, CEO of Postmates, and Marc Samwer of Rocket Internet. To quote Bastian: “I have lot of things to worry about every day.”
Deliveroo Vs. Foodora On-Demand Food Delivery On The German Market
Foodora (DE), previously Volo, was launched in October 2014, soon after Deliveroo (UK) had raised its Series A funding from Index Ventures. Deliveroo, founded 2012, made a move into German market in April 2015, triggering Rocket Internet to acquire Foodora in the speed of light. Foodora was then quickly sold to on-demand food delivery giant Delivery Hero in September 2015, causing an immediate massive cash injection into Deliveroo with $100M in Series D funding*. “Competition validates that you’re tackling an important market”, a fact that Deliveroo CEO and co-founder William Shu was ready to face with nearly $200M under Deliveroo’s belly, and the race to dominate the German on-demand food delivery market was on.
* The funding is used to deploy several simultaneous market expansions.
Building A Playbook For Go-To-Market Strategy – 3 Key Questions To Ask
Internationalization requires both a mental, and operational, shift back to a more strong focus on customer acquisition, why this post focuses on customer acquisition in terms of differentiation in service offering and brand discovery as a company enters a new market with direct competition. Customer retention will always be a key success factor, but first you need customers to retain.
Answering the following three questions will help you set the right building blocks for your go-to-market strategy and position yourself on the market with direct competition:
- Brand Recognition: You have built a (local) mini brand, i.e. you’re getting free leads, Word of Mouth (WoM), and inbound sales, but how strong is your international brand recognition? Are you the anticipated Netflix launch or Apple Store opening? How strong is brand recognition of your competitors?
- Differentiation in Service Offering: Does your service offer a yet unmet customer need, that would allow you to implement a different pricing and communication strategy?
- Market Size: Is there enough market potential to scale your service without initially acquiring customers from your competitors? If not, this is where your service offering needs to differentiate and kick ass compared to your competition.
- (Indirect Market Competition: You will always face indirect market competition, e.g. cultural differences that premiere customer behaviour opposite your service offering, as well as things like degree of customer loyalty, but these are obstacles you share together with your competitors. It’s important, though, to acknowledge what, and how strong, they are in order to compete and tweak your local customer offering.)
Majority of go-to-market strategies will fall under the category with weak international brand recognition, combined with direct market competition and similar service offering, thus your playbook regarding pricing and communication strategy will pretty much be dictated by existing competitors, how heavily depends on the market size. If you can’t compete with price and/or differentiated service offering, your customer acquisition basically relies on building brand recognition and discoverability.
Thus, on top of the challenge of setting up operations and logistics to meet the service level required to retain a customer, the two questions you should be asking every morning: “How does a customer discover my service?” and “How is the customer experience up to the point of first purchase decision?”
Deliveroo is now one year in on the German market, so let’s look at how it stacks up against Foodora from a first time customer point of view.
Customer Acquisition – Differentiation In Service Offering
Looking at Deliveroo and Foodora as a first time customer, either as a diner, a restaurant owner, or a driver, there are basically no differentiators, see chart below. I also talked to a restaurant owner who had recently opened up the place, and was using both services. He told he’s been equally happy with both services as they are the same in their offering, including an iPad per each service. I departed holding Deliveroo and Foodora vouchers with same €5 first order discount value.
Firing up respective apps, the similarities continue, and it’s hard to tell the two services apart (Guess who copied who?). The restaurant selection looks almost identical, the only apparent difference being Foodora’s search filtering options, see below.
I found two main differentiators during the ordering process: First, Foodora is a cheaper food delivery option when minimum order value of €12 was not met, see example below (€14,50 / €16). This doesn’t by any means need to be a dealbreaker for Deliveroo, since I assume majority of orders meet the minimum order value. Yet, it seems a bit like a hidden cost.
Second, Foodora’s ordering process offers more relevant options to me as a customer, both regarding the food order itself with special instructions, as functionality such as delivery notifications, see below.
Note on high service level as differentiator: Claiming higher service level than your competitors as a differentiator when entering a new market is relevant in cases your competitors are already associated with bad service. Your service should default to high service level, but will always need to be proven to carry weight regarding customer acquisition and retention. Thus, WoM created by high service level is usually too slow customer acquisition channel for an aggressive go-to-market strategy. See more under PR & Virality.
Customer Acquisition – Brand Discovery And Distribution
When your core service offering is: “Home delivery from your favourite restaurants”, it implies that a customer initially knows the restaurant she/he wants to order from. This is why on-site restaurant promotion and visibility are crucial to both services, just like having Order Buttons installed on restaurant home pages (if they have one). So far both the on- and offsite tests I’ve run, Foodora has turned out to be more present and visible, see below. When it comes to billboards, I’m calling it a draw.
I’ll be the first one to swear under oath that black is beautiful, as it is practical, but when it comes to visibility on the poorly lit Berlin city streets, with major colour scheme being 50 shades of grey and black backpacks, it’s very easy not to notice a Deliveroo driver, see below. Foodora jackets and bags on the other hand stand out. Deliveroo, how about beautiful turquoise jackets and/or bags? (My second favourite colour, too 🙂 )
Kids, don’t try this at home: Copying a competitor’s brand identity requires extremely low character and business ethics, like Foodora has so bluntly done by adapting the logo of Swedish on-demand food delivery service Waitress, founded 2013. They are now competing against each other on the streets of Stockholm. Sure, Foodora’s version is more noticeable, sad nonetheless.
Sales And Marketing Engine
“Developing a scalable sales and marketing engine is a key element of success for SaaS companies. It’s very important to explain in detail how this engine is designed and how you can scale while maintaining quality and productivity.” – Philippe Botteri, Accel Partners
Whether or not you’re running a growing SaaS business, building a functional sales and marketing model incl. channels with working unit economics is key to growth. Philippe Botteri of Accel Partners runs through few key models and what to focus on in respective model.
To quote Zouhair Belkoura, founder of KeepSafe, who grew the company to 50M users with zero virality and marketing: “You have to try everything. There’s no magic bullet, you gotta put in the work.” And the work is never done: When you find a channel that works, use it, but don’t expect any channel to last long term.
Two things to have in place prior going on a customer acquisition spending spree:
1. Streamlined Supplier Side Customer Acquisition
Restaurants are busy businesses, thus the acquisition process should be extremely streamlined, fast and convenient for them. The cost of labour intensive direct sales can be balanced with frictionless online application process of both restaurants and drivers. This also increases the inbound sales leads funnel, and Foodora has taken note. It has a clear service offering for both restaurants and drivers including a simple application form unlike Deliveroo, where busy restaurant owners are left with only an email address to take action upon. Your site may not be a main acquisition channel, but there’s nothing wrong with “free” leads through a channel you own.
One could argue, that by vague service offering only the “truly” interested will reach out, thus increasing the quality of supplier side offering. I would instead argue, that with aggressive growth goals and fierce competition the money is better spent elsewhere, as can and should the quality control of supplier side be built-in in the customer lead generation funnel.
Note: Big part of entering a new market is about establishing brand trust, and the more one relies on direct sales in customer acquisition, the more critical it is to weigh up to what extent a cheaper on-demand sales solutions such as Universal Avenue can achieve to do that in the initial market entry phase.
2. SEM (App Store) Strategy Aligned With Core Service Offering
As stated earlier, the core service offering of both Deliveroo and Foodora is “Home delivery from your favourite restaurants”, which implies that a customer initially knows the restaurant she/he wants to order from.
Foodora is leveraging this core service offering in its SEM strategy, at the moment dominating the search results for search words “delivery service + restaurant name”, e.g. “Lieferservice Bun Bao”, see below. They also do better on the general search terms “Lieferservice Berlin”and “Lieferdienst Berlin” (Lieferservice = Delivery Service)
Note on App Store discovery: App Store optimization is a essential part of the mobile first/only world, but it’s still fairly tricky, and not seldom having the curated Editors Choice and Featured Apps listings generating the success stories with massive download numbers (not to confuse with sign ups). In this case Food and Drink category also lacks a subcategory for Food Delivery, increasing the challenge of discoverability for all on-demand food delivery services. Both Deliveroo and Foodora rank equally good/bad on the German App Store:
- Search for “Lieferservice” ranks Foodora #3 and Deliveroo #6
- Explore / Food and Drink / Popular ranks Deliveroo #14 and Foodora #20
- Top Charts / Food & Drink / Free ranks Deliveroo #8 and Foodora #11
PR And Virality
As on-demand food delivery is not an inherently viral service, creating virality falls under product development, PR and marketing. Marketing and paid customer acquisition will grow in importance once the initial supplier side acquisition and logistics are in place, thus naturally I’ve seen very little of that apart from few Instagram ads and feeding hungry hipster bloggers. Blogger outreach is always a cheap option, even though you won’t be alone to receive their high praise. Strong on-site promotion in restaurants can be combined with meaningful(!) built-in virality features to simulate WoM.
To increase your brand awareness by hitting the jackpot with viral video that will take the attention away from funny cat videos is reserved for few, but just in case, I’ve saved Deliveroo the trouble and sent my favourite German viral ads incl. responsible agencies 🙂
As I made the point earlier regarding WoM and virality created by customer happiness; while it’s too slow of a customer acquisition channel for aggressive market entry demands, it better be your best buddy in the long term.
In Conclusion – Deliveroo Vs. Foodora Customer Offering And Acquisition
“The strongest will acquire the rest in order to obtain the scale necessary to make the network economics work.”
The equally happy restaurant owner implies, that Deliveroo has in its first year on the German market got the logistics in place offering the same service level as Foodora. With no apparent difference in the pre first purchase customer experience that would benefit Deliveroo, it seems to have calculated, that the market size is big enough without a need to differentiate, nor woo over Foodora diners, and that it can reach the market share and economies of scale required faster than Foodora. (To no surprise, these are the calculations required to greenlight a new market entry with fierce direct competition.)
And yet, oftentimes with equal customer offering, the devil lies in the details. We’re only one year in the game, but here are four key differences so far in their service offering and customer acquisition approach:
- Foodora has better visibility: Online thanks to SEM strategy to promote individual restaurants and order buttons, as offline with on-site promotion and street visibility.
- Foodora has a welcoming and streamlined online supplier side acquisition with simple applications forms.
- Foodora is a cheaper food delivery option if you don’t meet the minimum €12 order value. (As mentioned earlier, by no means a serious dealbreaker for Deliveroo.)
- Foodora has designed a more comprehensive non logged in customer experience on mobile devices, thus increasing trust to sign up and make a purchase.
Thus, if Deliveroo feels it’s not growing fast enough, maybe accelerating on brand visibility and overall customer experience pre first purchase will help.
There are a lot of moving parts in delivery business, and as Bastian of Postmates said: “I have lot of things to worry about every day.” The verdict’s out which one of the two will run the leanest operations and in the end be on the buyer side. I’m super excited.
Need help with your go-to-market strategy? Get in touch!
PS. Interested in food-tech, and European food-tech in particular? Grab the latest Tech.eu report Food-Tech in Depth: Funding & Exits 2015.
Paula is Digital Product Advisor and Top 100 Women in Tech in Europe, focusing on Product, Go-to-market, and Internationalization strategies. She has to date mentored over 150 digital technology companies, and rated as one of the best startup mentors in Europe. Read more about her work and personal guidelines. Contact Paula to help you build better products and drive growth. “You never learn anything when you speak, only when you listen” – Roelof Botha / Douglas Leone, Sequoia Capital. Connect on Twitter, LinkedIn.