eResearch | Foodora, a Berlin-based food delivery company owned by Delivery Hero SE (ETR: DHER), filed for insolvency and a notice of intention to make a proposal to employees and other creditors under Section 50.4(1) of the Bankruptcy and Insolvency Act (CANADA).
Foodora owes more than C$4.7 million to various stakeholders, which includes: C$1.1 million for office employees; C$243,508 for delivery drivers; C$568,000 for Allied Property REIT; C$333,333 for the Canada Revenue Agency; C$177,000 for Revenue Quebec; C$179,000 for Google; and C$419,000 for workplace insurance agencies across various provinces.
The filing came after Foodora announced an exit from the Canadian market with plans to cease all Canadian operations by May 11, which includes services offered by more than 3,000 restaurants across 10 cities in Canada.
Foodora press release stated, “Canada is a highly saturated market for online food delivery and has lately seen intensified competition. Foodora has unfortunately not been able to reach a strong leadership position, and has been unable to reach a level of profitability in Canada that’s sustainable enough to continue operations”.
Foodora and Delivery Hero SE
Foodora began operations in Canada in 2015 when it acquired and rebranded Hurrier, a Toronto-based food delivery company with 200 restaurant partners and 10x growth in orders quarter-over-quarter.
Foodora’s parent company, Delivery Hero SE, is a European multinational food delivery services corporation headquartered in Germany, operating in 40 different countries with over 500,000 restaurant partners and over 30 brands.
The closing of its Canadian arm is a small setback for Delivery Hero SE, as this week the company announced Q1/2020 revenues of US$563 million, a 92% increase quarter-over-quarter.
As the delivery industry became a core essential business due to the COVID-19 lock-downs, Delivery Hero SE experienced additions of over 50,000 restaurants and 1,500 grocery stores in the last three weeks of March.
Food Delivery Industry
In the past couple of years, almost every major food chain has partnered with at least one food delivery company. According to a recent report by Morgan Stanley, the U.S. food delivery industry is currently valued at US$356 billion and is expected to grow to US$467 billion by 2025, at a CAGR of 5%.
Due to the recent COVID-19 lockdowns and the food delivery applications making it easy to order food online, there was a large surge in new consumers trying out online food delivery.
Food Delivery Companies
Canada’s largest food delivery company is SkipTheDishes, who recently offered a 15% rebate on commissions to restaurant partners to help alleviate the stress of reduced revenues due to the COVID-19 pandemic. The rebate has since been increased to 25% until the end of May.
SkipTheDishes is owned by Just Eat PLC (OTC: JSTTY), a British online food delivery services company, who was recently acquired in a US$10 billion deal early this year by Takeaway.com NV, Europe’s largest food delivery company.
In the U.S., DoorDash is the market leader in food delivery sales, valued at US$12.6 billion last year after it acquired Caviar, a leading luxury food delivery company.
DoorDash is investing heavily into scaling and marketing its platform, and last month, DoorDash filed an application with the SEC to list publicly on a stock exchange to increase sources of growth capital
Amazon, the tech conglomerate who entered the grocery delivery business in 2017 through the acquisition of Whole Foods Market Inc., is entering the food delivery competition as it just received provisional allowance to invest into UK-based food delivery start-up, Deliveroo.
The Competition and Markets Authority (“CMA”) of the U.K. was initially worried about Amazon’s investment into Deliveroo, but the funding was approved after the CMA learned that Deliveroo needed significant funding to avoid closing down and Amazon was the only realistic investor.
As the food delivery industry grows with the COVID-19 pandemic acting as a catalyst, the competitive landscape is expected to become fiercer, which will lead to companies spending more cash in an already capitally intensive marketing competition.
More companies are likely to face the same situation as Foodora, in which the needed marketing spend to capture a piece of a market is unsustainable. Additionally, companies who end up surviving within each market will be laden with debt, with a long way until break-even.
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