The retail industry across the globe is rapidly evolving as players in the sector continue to explore innovative ways of improving consumer experience.
The food and beverage industry, which accounts for a significant share in the retail market, has been on the forefront of this revolution.
Primary producers, manufacturers and retailers are continually seeking innovative ways of lifting profitability, adopting to changing lifestyles and improving consumer experience and definitely, sales.
This has seen the retail industry take a new course and slowly migrate from the predominantly used physical stores to more convenient shopping systems.
Arguably, e-commerce and last mile delivery seem to be wading their way into the market with analysis signaling that this retail space might grow into becoming one of the largest and fastest growing trends in the food and beverage industry.
According to Statista, the revenue in the worldwide online food delivery segment shall hit US$18.9 billion in 2020, with revenue expected to show an annual growth rate (CAGR 2020-2024) of 8.2%, resulting in a market volume of US$25.95 billion by 2024.
It adds that the segment’s largest segment is restaurant-to-consumer delivery with a market volume of US$13.1 billion in 2020, with China generating the most revenue at US$45.9 billion in 2020.
North America is already host to over 10 online food delivery companies with Grubhub, the largest player, accounting for over a one third share of the market. Europe also has over 10 providers, with Dutch company Just Eat having a presence in eight countries in the region, and an over 83% share of the UK market.
In this market, the Asia Pacific region is emerging as a clear leader with four of the top global online grocery markets while accounting for 55% of the global food delivery market in 2018.
Online grocery in is predicted to reach US$176 billion by 2022. China leads the pack while Japan, South Korea, Indonesia and India are following closely. In India, the market is projected to reach US$10.5 billion by 2023.
Major players in the market include Zomato, Bigbasket, Swiggy, MilkBasket and Walmart-owned Flipkart.
According to a recent trends report by Jumia Food, Kenya’s growth in food and accommodation services (10.6%) outpaces the real GDP growth (5.6%) and the growth in the services sector (6.6%), quoting the World Bank Economic Update.
The estimated market size for the total food and beverage sector in the country stands at KSH 830-880 billion (US$8.3-$8.8 billion, while across Africa the demand for food delivery and other on-demand products – and with it, service providers that are providing the last-mile connectivity services – has grown significantly.
Africa embraces online food delivery
Uber Eats, the food delivery service of the world’s leading ride hailing company Uber, is proud of its success in delivering pizza, chicken and chips, fish and famous local food across Africa’s burgeoning urban centres.
Driven by rising access to the internet and mobile phones, increasing economic prospects and a youthful population that takes convenience at the push of a button as a priority, the food delivery company reported in September 2019 that it had delivered one billion food orders to more than 500 cities around the world in less than four years of operation.
With more than 60,000 restaurants across Europe, Middle East and Africa in over 250 cities, the company notes that ‘with the rapid modernization of the food industry, the rise of food delivery’ has been tremendously felt across this region.
Reporting that it had over 420 restaurants across Kenya by the end of 2019, the giant says that it is confident that it will continue to grow its network of restaurants to meet the rising demand for food delivery.
But, as Uber Eats pulls its weight to be the leader in the food delivery space across major cities in Africa, several local, regional and international giants have joined the fray.
Jumia Food, the online business giant also reports to having thousands of customers across the major cities in Kenya, just as it does across other countries in the Continent, including Nigeria, Tunisia, Ivory Coast, Ghana, Morocco, Algeria, Senegal and Nigeria.
Even though the company has made the news recently for closing its operations in Rwanda, Cameroon and Tanzania, it continues to grow its influence in the Continent, launching its Jumia Prime service late 2019 – a subscription package allows customers to pay a standard fee and receive guaranteed unlimited free deliveries on all orders placed on its app or website.
In South Africa, Mr. D, which is a food delivery service owned by e-commerce giant Naspers, prides itself for its service to more than 1 million customers across 2500 locations to access over 5000 restaurants across the country.
Beyond the restaurant-to-consumer segment, leading food and grocery distribution platform, Twiga Foods recently raised funding lead by top American investment Bank to enable the five-year-old start-up accelerate its market penetration.
In a deal that counts as Africa’s largest e-retail investment year to date, Twiga Foods raised US$30 million lead by Goldman Sachs, which the online grocery platform intends to use on expansion in Kenya and select African countries, including Nigeria.
Even as the big giants hog the headlines, there are other significant local players across the continent that are also. In Kenya, Yum says it work with over 250 restaurants and over 10,000 customers in Nairobi and has also launched in Kampala, Uganda.
Glovo, a Spanish startup was the most recent to stake on the East African nation’s vibrant ecommerce market. Glovo officially set base in the country in January 2019 and has aggressively expanded into the country’s capital.
The grocery and food delivery platform has also tricked retailers like Naivas Supermarket and fast food chains into biting the cake.
Competition leads to buy-outs
Globally, the online food order industry has grown into a hyper-competitive field, which has led to consolidation as companies claw for a bigger slice of the sector.
In 2018 alone, more than US$9.6 billion was pumped into these companies, with Asia receiving almost 60% of these funds, with heavy tech titans like Alibaba, Tiger Capital and SoftBank Group being among the leading investors in the online food delivery businesses.
In India, Zomato, the food delivery company backed by Alibaba’s Ant Financial, acquired Uber Eats India in an all-stock transaction which will give Uber a 9.99% stake in Zomato, as the American food delivery company had struggled with its Indian business following Zomato’s entry into the multi-billion dollar market in 2017.
In the UK, the Dutch food delivery company Takeaway completed the acquisition of the UK’s largest food delivery company Just Eat for US$ 7.8 billion, creating Europe’s largest food delivery company.
Experts opine that more mergers and acquisitions should be expected in the sector, as scale and profitability start to be key determinants of further growth in the sector – and as investors seek returns from these tech enabled enterprises.
Chicken, pizza and burgers drive Kenya’s appetite
The food delivery market in Kenya is set to grow by 3.5% per year until 2021, according to McKinsey, as a surge in deliveries for Kenya’s favourite foods continues unabated.
According to Jumia Foods, in 2019, Kenyans preferred chicken as the most popular cuisine for delivery, followed by pizza and burgers. The delivery firm notes that burgers have strongly grown in popularity from 5th in 2017.
Affordability, convenience and availability of these food categories have been the main driver for these trends. On affordability, Jumia Food says that restaurants are increasingly offering meals in lower price categories (below 300 KSH – US$ 3) and as a result breakfast and lunch are gaining popularity as delivery meals. However, dinner is still the most popular meal representing over 50% of all orders.
The worldwide trend of virtual kitchens (establishments that primarily make food for direct delivery purposes only, without any physical restaurant set up) is increasingly a popular operating model for restaurants to take advantage of a growing demand for convenience and to manage their costs
In 2020 Jumia Food expects the growth in on-demand deliveries to accelerate by over 50%, on the back of a continuation of the trend of more affordable menu items, enhanced availability of popular vendors, increased mobile penetration and a growing awareness of convenience. The company says it expects to see the availability of lower priced menu items to increase.
It further adds that 2020 is poised for a strong growth in on-demand deliveries of non-restaurant items like groceries, pharmacare products, alcohol products and other on demand categories such as cosmetics, gifting and flowers.
Source: Jumia Foods
This article appeared in the Jan/Feb 2020 issue of Food Business Africa magazine. You can access the entire magazine HERE