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Deliveroo Plans to Make Its Own Food and Replace Chefs and Riders With Robots

The restaurant delivery giant has laid out plans to half costs and double its profit margins

Food delivery platform Deliveroo has encouraged the UK government to reconsider restaurant business rates
Deliveroo has told investors it will half the cost of food and double its profits
Ellie Foreman-Peck/elliefp

Deliveroo has laid out a radical plan to overhaul its business model with automation and making its own food in a 20 slide presentation to investors, obtained by Eater. The standout objectives for the delivery giant in the presentation are:

  1. Create its own food offerings, personalised for customers
  2. Half the cost of food for customers
  3. Automate delivery
  4. Automate food production
  5. Double its profit margins

The food delivery company raised $385 million in its most recent funding round, taking the total it raised to $860 million and valuing the six year old startup to over $2 billion. This presentation by Deliveroo was made in July last year.

Making its own food

Under the heading ‘own content’, Deliveroo states it will pursue four critical goals: ‘hyper-personalized (sic) food produced by Deliveroo; lower price of food; create daily use case; greater margin due to supply chain savings and automation’. The company has for some time been collating its own rich bank of data, picking up how, what and when people order food around frequency, timing, location and food types. (There is opacity around precisely what data is shared. But it is known that the company does not share all of its customer data with its restaurant “partners.”)

Automated making and delivery

Deliveroo also reveals its intention to use artificial intelligence and robotics to transform its operations and costs in kitchens as well as replacing riders to ferry meals to people’s doors. It foresees the cost to make food coming down to £1 per meal, and delivery reduced to £1 per order too.

Investors have for some time been asking how the business gets significantly bigger volumes, and more crucially, becomes profitable. (A spokesman for the brand confirmed to Eater that Deliveroo is profitable in London now.)

Deliveroo’s response to investors is that this technological change (and the huge reduction in labour costs) will allow it to slash its prices to diners from an average order of £24.20 today to £12.10 in the coming years. The investor summary also states that AI and robotics will enable Deliveroo to double its margins from today’s level of 15 percent to a 33 percent.

Deliveroo’s future vision

Halving the price for a typical order would open up a vastly bigger market given Deliveroo is deemed too expensive by many customers to order regularly. In Deliveroo’s vision of the future, restaurants will be limited to “special occasions” and people will only cook “as a hobby.”

Rapid expansion

Deliveroo has made significant strides since it first started supplying residents around Chelsea with a few restaurant options in 2012. Although just trading for six years, it claims to now serve over five million people in 12 countries. Orders jumped by 18 times last year to the volume in 2015, according to the company’s investor pitch. The company also talks about the efficiency of its ‘expansion playbook’: while it took 96 weeks to get to 10,000 weekly orders in London from when it launched, it took just 33 weeks to hit that milestone in Paris and 18 weeks in Singapore.

Restaurants and Deliveroo

Deliveroo is quick to point to examples where it has increased turnover for restaurant partners, and indeed many restaurants have materially benefited with a profitable sideline.

However, several restaurant operators have spoken privately about their anxiety with doing business with Deliveroo for the following reasons: 1) The extent to which sales through Deliveroo are replacing people who would buy direct; 2) Deliveroo’s commissions ratcheting up; 3) Lack of long term agreements; 4) Rider unreliability; 5) Unreliable equipment; 6) Loss of control over brand and experience.

A small number have made their concerns public.

The owner of barbecue chain Bodeans, Andre Blais cited “cannibilisation fears” when he removed his offering from Deliveroo in March last year. (Bodeans has subsequently returned to the app.)

According to Big Hospitality, the managing director of Vietnamese restaurant chain, Pho, Mark Smith, said as recently as February this year, he expected Deliveroo to make its own food. “They control the customer data. They know all the Vietnamese noodle customers who’ve ever ordered Deliveroo through us. Combine that with a dark kitchen and the data, that’s really powerful for them to start thinking about being an operator.”

Much loved east London Turkish restaurant, Mangal 2, tweeted last week: “I’m fucking pissed off @Deliveroo. You take 25% of all sales, plus extra VAT, and you can’t even fucking send a repair person to fix the tablet you gave us [….] Unacceptable.”

While, Zan Kaufman of Bleecker Burger said at an event late last year in reference to Deliveroo: “They haven’t given me a long term contract so I’m nervous. As the percentage has creeped up, my nerves have creeped up.” Deliveroo has said that Bleecker has seen been issued a long-term contract.

However, it’s the concerns of the investment community which this investor deck addresses. Deliveroo’s model has come under scrutiny since it launched, specifically around whether the business could profitably scale with such fine margins. The plans to use automation and “create own content” appear intended to assuage those concerns.

The points in the article were put to Deliveroo. A spokesman for the company said: “Deliveroo’s Editions platform allows restaurants to expand to new areas, create new brands and reach new customers without needing a high street presence. This delivers results for restaurants, who can increase their sales, and delivers for our customers, who have access to an even greater choice of restaurants.”

The spokesman also wished to reiterate, from its own perspective, that “Deliveroo strengthens the UK restaurant sector and restaurants who partner with Deliveroo see their revenue increase by up to 30 percent.

“We have created 7,200 jobs in the restaurant industry since launching in the UK five years ago and we are proud that our growth benefits others.”

And yet the current status of both restaurants and delivery riders appears vulnerable in the company’s vision for the future.

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