Food delivery from restaurants is the fastest growing opportunity in foodservice, but current demand and expected growth in Germany is lower than regional and global averages. Recent developments in the competitive landscape support this, as do unique market conditions that reflect a culture of traditional consumption behaviour.
Germany is a unique market in many ways. A recalcitrant commitment to traditional brick and mortar combined with a culture of cash payments means the digital trends driving growth in many other parts of the world have a more limited impact in Germany. And yet, despite the limitations of food delivery as a service, the German foodservice industry overall is healthier than ever.
Germany’s traditional market environment an initial hurdle to delivery
Spending on food delivery in Germany totalled EUR2.9 billion in 2018, according to Euromonitor International data. Delivery sales combine a blend of digital marketplace delivery services like Lieferando (of Takeaway.com), more traditional phone-in, cash-on-delivery orders from pizza chains, and everything in between. This is low in per capita spending terms. In the UK, for example, a country of similar population size, delivery totalled EUR7.5 billion (GBP6.7 billion at constant 2018 prices).
Takeaway.com, effectively Germany’s sole third-party delivery operator, has twice as many restaurants on its platform in Germany as it does in the Netherlands (a country with roughly one fifth the population), but nearly the same in terms of 2018 sales, according to company financial documents. Demand in Germany is clearly much lower.
Food Delivery Spend Per Capita: Western European Rankings in 2018
|Rank in Western Europe||Country/Market||2018 Food Delivery Spend Per Capita (EUR)|
|8||Western European Average||55.0|
Source: Euromonitor International - Passport Consumer Foodservice
Note: Ranking includes 19 markets defined as countries in Western Europe. Includes Turkey as a country and Western Europe as a region.
There are cultural differences to explain this. One has to do with time. A chief driver of delivery is the convenience of the service, which in turn is driven by a lack of free time. In many countries, the time saved on a delivery order is worth the added cost. In Germany, however, flexibility and time out of the office has always been – particularly – highly valued by employees and generally protected by corporate working culture. Most office workers are home at reasonable hours on workdays, leaving time to shop for groceries or otherwise plan for the week’s meals. This makes delivery feel like an expensive moment of indulgence, rather than the justified solution to a problem.
When time is a factor, there are also plenty of places to grab meals on-the-go. Convenience is a key driver of sales to small-format brick-and-mortar businesses catering to on-the-go sales. From small-format supermarkets to traditional imbiss (small snacking and takeaway restaurants) and kiosks, most consumers are never very far away from an affordable grab-and-go meal.
Finally, Germany as a single consumer market stands out from even its Western European neighbours. Germany lacks a true urban hub, a single addressable consumer market. The Netherlands has the greater Amsterdam metropolitan addressable market, a dense urban consumer environment to scale a delivery business. The UK has London, Austria has Vienna. German consumers are spread out across the country’s many smaller, less dense urban areas, each of which are culturally quite diverse, which makes delivery resources more costly and less efficient, and a strategic growth model for the country as a whole more complicated.
Takeaway.com monopoly could further stifle delivery growth
Recent changes to the competitive environment also shed light on the likely near-term evolution of delivery in Germany. Netherlands-based Takeaway.com, which already had a strong marketplace presence in Germany, acquired key competitor Delivery Hero in late 2018 to become one super player in the market. Shortly after, Deliveroo, a fast-growing UK-based third-party delivery service, withdrew from the market altogether. Deliveroo cited tough competition, pulling out despite a recent wave of funding from investors including ecommerce giant Amazon.
As business decisions, these events likely made sense. The cost of customer acquisition is high when two or more players of nearly equal size must lure users away from competing services, and those costs eat into profits. Merging services and streamlining brands should ease operating costs for Takeaway.com, making them more profitable. Deliveroo’s relatively recent arrival to Germany meanwhile would have made it hard to compete with a larger service with stronger brand awareness.
But there are already signs that monopolistic behaviour is a challenge to innovation which could stifle growth. As a monopolistic service, Takeaway.com has more power to increase its fees to both restaurants and consumers, making the service that much less attractive for either. Takeaway.com will surely increase fees to increase profitability, something it needs to do to prove it can be profitable as a business in the long-term.
Second, Deliveroo had established a variety of partnerships which have by now either backed out of delivery or must otherwise decide to partner with Takeaway.com under new terms. It is this second effect that is particularly interesting. Most of Takeaway’s delivery sales are marketplace sales, while Deliveroo by contrast offered an alternative in the market by doing the deliveries itself. The service made it possible for restaurants that never traditionally offered delivery to suddenly participate.
Deliveroo also helped facilitate a wave of so-called ghost kitchens and virtual restaurants, delivery-only restaurant concepts that relied on Deliveroo and similar services to do the actual deliveries and connect them to consumers. Keatz, a once-growing Berlin-based ghost kitchen and oft-cited example of digital foodservice innovation, was forced to shut down following Deliveroo’s retreat. According to trade press, Keatz is taking its business to other Western European markets instead.
Foodservice Growth Despite Delivery Challenges
Despite the challenges, food delivery will continue to grow in Germany. Takeaway.com will take a purposeful approach to development, always with profitability in mind. Delivery is also growing outside the marketplace model. The rapid growth of Domino’s Pizza in Germany, for example, is having an impact. Domino’s delivers its own meals with its own fleet of drivers and relies on a digital-first approach to ordering.
Finally, despite signs that delivery is not growing as fast in Germany as it is in countries where delivery is really fuelling growth in the foodservice industry as a whole, the industry is still growing. This means there are drivers other than delivery and digital technology fuelling growth. A growing foodservice presence in retail places is partly responsible. So too is the attractiveness of sharing a prepared meal in a creative (experiential) environment. Foodservice in Germany is expected to grow by an incremental EUR7 billion over the next five years. Delivery may have its limitations in Germany, but more consumers than ever are choosing foodservice regardless.