Amazon seems to be benefiting from Deliveroo’s foray into darkish kitchens

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LONDON – Amazon is well positioned to take advantage of a hot new trend in food delivery: “dark”, “ghost”, “delivery-only” or “cloud” kitchens.

These pure delivery kitchens are often located in shipping containers or warehouses at industrial locations and provide restaurants with another point of sale to bring their groceries to customers. They were founded around the world in recent years and the people behind them say that they can relieve the existing restaurant kitchens.

British start-up Deliveroo claims to have pioneered these kitchens and plans to invest heavily in them over the next 12 months.

Assuming everything goes well, Amazon should benefit from every success Deliveroo has with its delivery kitchens. This is because Amazon amassed itself at Deliveroo in May and directed a $ 575 million round of funding into the London-based company in return for a 16% minority stake in the company.

James Lockyer, an analyst at Peel Hunt, told CNBC that Amazon “doesn’t often do things that it doesn’t think can be number 1 or number 2”.

Put an end to the postcode envy of groceries

Founded in 2013 by Will Shu and Greg Orlowski, Deliveroo uses a network of 80,000 freelance couriers to deliver groceries from over 100,000 restaurants (and dark kitchens) to people’s homes and offices.

Deliveroo launched its first delivery-only kitchens, branded Deliveroo Editions, in May 2017 and said they would put an end to “zip code envy” as restaurants can expand into new areas.

“My bet was that this would be the future of grocery delivery,” CEO Shu said in December of delivery-only kitchens.

Deliveroo currently has 14 Editions locations in the UK and 32 worldwide with hubs in Australia, Singapore, Hong Kong, the United Arab Emirates, the Netherlands, Spain and France. In total, there are around 220 kitchens spread across all of the Deliveroo Editions websites.

It won’t stop there, though: Deliveroo plans to double the number of edition websites to 64 in 2021.

A useful asset

Despite their apparent success, not everyone is a fan of Editions. Deniers have accused Deliveroo of circumventing scheduling rules and illegally cooking thousands of takeaway meals in the delivery-only kitchens, and some local residents have complained about an increase in the number of delivery drivers working in their neighborhood.

According to Deliveroo, the company is working closely with local authorities to ensure that it has the correct building permit. It is also claimed to be putting in place management plans to avoid disruption to residents.

With take-aways being the only viable option for many restaurants due to coronavirus lockdowns, dark kitchens have become a useful asset for some restaurant owners.

Tim Vasilakis, founder of The Athenian, said his restaurant needed to change its business model when the first UK lockdown was announced in March 2020.

“We turned into an online-only restaurant overnight,” he said. “In the months since then, we have used all of our resources to expand into edition kitchens in order to safely continue trading in volatile conditions.”

According to Deliveroo, the average weekly order volume per serving kitchen has increased by 68% since March.

With the exception of a rocky period at the start of the pandemic, Deliveroo had a bumpy year in 2020 with sales up 62% to £ 771 million ($ 1 billion). This year is expected to be one of the largest tech IPOs in the UK. According to reports, a listing on the London Stock Exchange could be worth up to $ 13 billion.

The Amazon ‘Superapp’

While Amazon is only a minority investor, some analysts believe it is seeking a closer relationship with Deliveroo.

Amazon previously operated its own online take-out business called Amazon Restaurants, but closed operations in the UK in 2018 and closed the deal in full the following year.

In July 2019, the UK’s Competition and Markets Authority argued that Deliveroo’s cash injection from Amazon could reduce competition by eliminating the e-commerce giant’s possibility of re-entering the market, while Deliveroo could “stop differentiating itself “. “” It froze the investment for almost a year while it investigated.

To the disappointment of rivals Just Eat and Domino’s Pizza, the deal was approved by the CMA in August after Deliveroo announced that the deal could be shut down without the capital.

Jonathan Branton, partner and head of EU competition at law firm DWF, told CNBC that he doesn’t think Amazon will end up monopolizing food delivery. “I would imagine that there will always be others who invest in this project with alternative offers and try to gain a foothold,” he said.

Branton said he also couldn’t see restaurants disappear “since it’s about the on-site experience as much as the food.”

According to Lockyer of Peel Hunt, Amazon might one day try to integrate Deliveroo with its own app to create some sort of “super app” just like Uber did when it folded the UberEats app into its main app.

“It would obviously help them,” he said. “That didn’t happen, but it wouldn’t be unreasonable for you to go in there and have Prime, you have Fresh, you already have Morrisons in there. Why not? They have done it in the past with restaurants.”

He added, “Having a superapp or app with eyeballs present and rounding up another service is a lot easier than trying to build a customer base organically. Could Amazon include Deliveroo in its app? It seems like a very positive thing. It might not work because the CMA might take note of it again and it would have to be done right. But logistically and strategically it makes sense. “

Uber Eats, one of Deliveroo’s biggest competitors, closed its only dark kitchen in Paris last summer to cut costs and focus on profitability.

Others, however, double the number of delivery kitchens. DoorDash, another food company, opened its first delivery kitchen in October 2019, while the parking garage operator Reef has set up delivery kitchens in its parking lots since the pandemic. Meanwhile, Uber co-founder Travis Kalanick has started his own dark kitchen business called CloudKitchens, which has expanded into the US, Europe and Asia.

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