Amazon Enters U.K. Restaurant-Delivery Wars With Prime Perk

  • Just Eat shares fall as much as 5.3% as competition heats up
  • Amazon will provide free delivery for its Prime customers Inc. has extended its U.S. restaurant delivery service to London, entering a fiercely competitive market as it seeks to capture more of Britons’ online food spending and expand the use of its same-day delivery app.

The free, one-hour service is available in certain post codes for the online retailer’s Prime customers, and includes restaurants such as Michelin-starred Benares, Levant, Strada and Crazy Bear. The service started in Amazon’s hometown of Seattle last year and is now in a dozen U.S. cities. It follows the online retailer’s June introduction of U.K. grocery deliveries under the Amazon Fresh banner.

The move extends Amazon’s strategy of continually adding services for Prime members, who typically buy more items from the online retailer than those without the subscription. With food delivery, customers make orders through the Amazon Now smartphone app, a tie-in that may bring in new users for its tool for having toiletries, beverages or household items delivered within two hours.

“The allure of high growth of the industry, due to the channel shift towards online ordering, is behind the rise of new entrants,” Neil Campling, an analyst at Northern Trust Capital Markets, said in a note. “Amazon can reduce the cost per delivery by bundling deliveries from multiple restaurants to similar locations.”

Crowded Field

Amazon joins a crowded field of online food-delivery services in the U.K., with rivals including Uber Technologies Inc., closely-held Deliveroo and Just Eat Plc, whose shares fell as much as 5.3 percent in London Wednesday. The market has heated up over the past year with a slew of deals, and last month Deliveroo received funding that values the company at more than $1 billion. Business models vary: Deliveroo takes food from restaurants to a customer’s front door, while Just Eat operates an online-only portal for processing orders.

The typical way companies make money from food delivery is by collecting a fee on each order, both from customers and the restaurants. The company then must balance that against what it costs to pay the couriers who make the deliveries. The key element to becoming profitable is maximizing the deliveries each courier makes. It’s a logistics challenge that some companies have struggled with. One Brussels-based start up, Take Eat Easy, recently shut down after its CEO said the company couldn’t manage the courier costs.

No Fees

Amazon, with a deeper war chest than any of its competitors, will attempt to differentiate itself by cutting out customer fees for all orders exceeding 15 pounds. It’s a tactic the company has used in other markets it’s entered, be it books or tablets. Amazon said menu items will cost the same as if ordering in a store and is promising to reimburse customers if they see an item listed at a lower price within 24 hours.

Amazon’s Prime members pay 79 pounds ($106) a year and receive free expedited delivery and other benefits like streaming videos.

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