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Deliveroo | What Do They Do?

Happy Monday All!

Welcome to Week 2 of The Business Of newsletter! And we’ve got a very interesting business model to break down this week.

I'm pretty sure everyone reading this has used (or at least heard of) Deliveroo. After launching in the UK in 2013, the online food delivery company has had an incredible phase of growth. Let's dive into their business model and first, break down what they actually do… because it’s more complicated than you might think!

Deliveroo cyclist photo

The 3-sided Marketplace

Whilst we often hear of companies that operate 2-sided marketplaces, (e.g. Airbnb, Uber, Tinder), food delivery companies have to operate very complex 3-sided marketplaces. As we see from the graphic below, the 3 sides are (i) consumers, (ii) restaurants and (iii) riders.

How Deliveroo coordinates between customers, restaurants and riders diagram

Marketplace business models are incredibly difficult to get right because it involves a chicken-and-egg problem. You need to first build up supply on one side in order to generate demand on the other side (e.g. Airbnb had to convince their first home owners to list their properties even though they had no renters initially). However, what makes marketplace business models so attractive for entrepreneurs is the phenomenon called network effects. In the case of Deliveroo, as more customers download the app, the platform becomes more attractive for restaurant owners and riders. As more restaurants sign up to be a partner, the platform becomes more attractive for customers and riders. And as more riders… you get the picture! The graphic below illustrates this.

Deliveroo, customers, restaurants, riders with explanations diagram

Deliveroo has done a great job building its marketplace over the last few years. Monthly active customers is now over 7.5 million, the company has over 180k restaurant partners and their rider count is also ~180k. Deliveroo’s growth is a fantastic example of the power of network effects.

Deliveroo monthly active customers, restaurants and riders from 2018 to 2021 table

Fun Fact: When Will Shu (the CEO of Deliveroo) first started the company, he was the company’s first (and at the time) only rider. There were only 3 restaurants on the platform. And the only customers on Deliveroo were his friends he pestered into ordering! Whilst rewarding, it is incredibly tough starting a successful business.

Nigel profile photo

27th Feb 2023

Nigel Jacob CFA

That’s a wrap for today. We’re back tomorrow with part 2 of Deliveroo where we’ll be looking at how the company makes money. And we think quite a few of you will be shocked at Deliveroo’s main revenue source!

Have a great day!

The Business Of Team