Topic Videos

Industry Profile: Food Delivery Market

Level:
A-Level, IB
Board:
AQA, Edexcel, OCR, IB, Eduqas, WJEC

Last updated 18 Nov 2022

In this video we look at aspects of the fast-growing and changing food delivery market in the UK. Great application for your exams!

2022 Exams - Industry Profiles - Food Delivery Market

The UK food delivery market has expanded rapidly in recent years accelerated by lockdowns during the pandemic when household demand for food delivered from restaurants surged. The market is contestable although dominated by a small number of firms such as Just Eat, Uber Eats and Deliveroo. A clutch of smaller firms offering grocery deliveries has also entered the market – many based in cities where the marginal cost of services is lower and potentially more profitable. Getir is perhaps the most prominent of these.

The food service delivery market in the UK was valued at approximately £11 billion in 2020 and this market is forecast to grow to £12.6 billion by 2024. The average revenue per user per year is forecast to rise to £150 by 2023.A 2021 survey by Which? discovered seven out of 10 people use food delivery apps, and the average 30-year-old UK resident spends around £8.50 per week on takeaways.

None of the major food delivery companies in the UK make an operating profit despite a surge in demand and rising revenues:Heavy spending on marketing in the battle for market sharePressure to lower delivery fees for consumers – game theory can be applied hereDifficulties in generating incremental revenue beyond deliveryRising labour costs as they take on more riders & driversIncreasing pressure to raise wages and offer standard employment rights such as sick payEnormous fixed costs of building the platform infrastructure

This market is highly contestable because consumers are significantly price sensitive and the barriers to entry are low.

Customers have market power that allows them to request lower prices and higher quality – switching costs are low (XED is high)

Price competition between firms leads to profit margin erosion

In contrast, bargaining power of workers is low (monopsony at work)

Path to long run profits is probably through:

  1. Merger/takeover (though Just Eats' takeover of Grubhub seen as a failure)
  2. More joint ventures between delivery firms and other retailersInvestment in “dark kitchens” as a source of revenue & lower cost

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