Food Runner, which says it’s the number one online food delivery service in Southeast Asia by revenue, announced that it has acquired City Delivery, a Philippine company which delivers restaurant food, groceries, flowers, and other items. Neither party has revealed the terms of the deal.
This acquisition is a core component of Food Runner’s expansion strategy. The business started out as Dealivery, which was part of Singapore-based group buying company DealGuru. Dealivery later purchased Asian Room Service, a food delivery firm which serves customers in Singapore, Malaysia, and Indonesia.
Then in June 2013, DealGuru spun off the food delivery unit into a separate business entity and renamed it Food Runner.
These acquisitions, including City Delivery, make sense for Food Runner because they marry its e-commerce and online marketing expertise with the target’s local knowhow, delivery network, and relationships with food establishments.
Why local knowledge matters
It’s an approach that contrasts with Germany’s Rocket Internet, which tends to parachute management consultants into its markets to manage local teams. Rocket Internet also runs FoodPanda, a global food delivery company with US$48 million in funding (not all the money goes into Southeast Asia).
Ashley Co Kehyeng, founder of City Delivery, notes that local infrastructure and knowledge is critical to succeed in food delivery in emerging markets. The company relies on traditional marketing methods like brochures to get new customers, and operates a command center powered by Google Maps and GPS to find optimal routes in the traffic-heavy metro areas of Manila.
“Our riders would call back to the center to update about traffic conditions. Other times we rely on news reports,” says Kehyeng.
City Delivery adds a sizable chunk of business into Food Runner’s embrace. According to Lance Frey, CEO of Food Runner, City Delivery piled on at least 60 percent to its existing order volume. They plan to expand their services to second-tier Philippine cities like Cebu and Davao.
Without accounting for City Delivery’s business, Food Runner has already been seeing at least 40 percent year-on-year revenue growth. It is currently profitable in Malaysi and breaking even in Singapore. But Frey notes that its profitable markets tend to be ones where the company has the longest presence. So, he expects the Philippines to pick up in revenue soon.
The company earns money through a combination of service fees and commission from restaurants. There is no backend for restaurants to manage – Food Runner takes care of the entire service for clients. That makes it akin to a traditional e-commerce company in many respects with an emphasis on high volumes, low margins, and customer loyalty.
Latching onto the rocket
Online food delivery services are certainly familiar to Western audiences, who would have used websites like Grubhub in the United States and Delivery Hero in Europe.
In Asia, such services are just starting to gain prominence, and trust still needs to be earned among consumers in emerging markets. Food Runner has seen customers in Singapore preferring online orders over phone calls. In the Philippines, however, people still prefer to dial. It aims to eventually nudge consumers towards online orders, which is more scalable.
Food Runner has a pedigree steeped in e-commerce. Its original parent company, DealGuru, was backed by Rebate Networks, another German e-commerce investor. Food Runner’s backer, Digital Media Partners (DMP), has also been funding startups across the entire e-commerce spectrum.
Dmitry Levit, general partner at DMP, said that startups typically have a few ways to react to Rocket Internet’s presence: “You either ignore them, compete head-on and die, or follow their slipstream and ride on their growth,” he said.
The company hopes that its expansion-through-acquisition approach can give it an edge against the more well-funded FoodPanda. Nonetheless, Frey believes the market is big enough for two players.
“Our orders bump up whenever FoodPanda did their marketing push,” he said.
(Editing by Steven Millward)