How 2020 disrupted the online food delivery landscape in the UK
2020 marked a turning point for online food delivery
The rapid rise of e-commerce and the increasing need for convenience have fueled disruption in the online food industry. With food catering services closed throughout most of the year, and grocery retailers seeing long queues to get in, the pandemic has forced consumers to radically alter their purchasing behaviours, accelerating the penetration of online channels for both prepared meals and grocery. In the UK, the share of online food sales as a percentage of total retail sales rose to 9%, a staggering 70% increase from the previous year (Exhibit 1). And it keeps growing — as of February 2021, 12% of all retail sales were online food transactions (ONS).
We’re starting to see the normalisation of on-demand food, despite the viability of the business model not being entirely clear yet. Incumbents now gain a competitive advantage from last-mile optimisation and lower delivery fees. And with this change, many established retailers have found themselves on the back foot. What does all of this mean for the online food delivery space?
DELIVERY OF PREPARED MEALS SURGED; E-GROCERY SAW NEW COMPETITORS ENTER THE MARKET
Delivery of prepared meals saw huge growth in demand as consumers faced limited options. The total market size increased by over 50%, with Justeat, UberEats and Deliveroo increasing their delivery transactions by 55%, 80% and 75% respectively (Dealroom). Growth is expected to maintain an upward trajectory post-Covid, with a CAGR of 6% between 2021–2024 (Statista).
Incumbents have been diversifying revenue streams to find new growth opportunities and hedge against post-Covid uncertainties. Deliveroo for example, which had a less than ideal start to its IPO earlier this week, now covers both sides of the consumer’s decision-making process after introducing…