Berlin-based Delivery Hero has built up a large network of online food ordering and delivery operations globally that was valued at over $3 billion as of its last fundraise, but it has now decided to call it quits in one of the biggest markets in the world.
TechCrunch has learned, and now confirmed, that Delivery Hero is getting out of China after facing aggressive competition from local startups, which include the likes of Ele.me and Baidu Waimai. Delivery Hero plans to divest Waimai Chaoren (“Takeout Superman”), over the next couple of months.
If you can’t stand the heat, get out of the kitchen, as the saying goes.
We first got wind of the news from an anonymous tip, and Delivery Hero’s co-founder and CEO Niklas Östberg has confirmed the details (update: Delivery Hero has now also posted a statement confirming the news).
Östberg says rivals intent on scaling are offering cut-price and even free services, and Delivery Hero doesn’t have the appetite to invest the sums it would need to meet the challenge:
The competition in China has become anything but sane where companies have been flooding the markets with free food to users and no commission to restaurants. There will likely be someone making a lot of money in China but the amount of investment required is going to be big. How big is unknown. This makes the long-term return that can be made very unknown and doesn’t fulfil our investment criteria. There are fights worth fighting, [but] for us, this is not one of them and we will be divesting our business over next couple of months.
Delivery Hero is not disclosing details about potential buyers, or whether it will simply shut down the operation completely. “We are evaluating all options,” Östberg said.
Our original tipster claimed that 1,000 jobs will be affected. Delivery Hero says the number of employees affected is around 400. (The larger figure may be based on contractors who ran deliveries for Waimai Chaoren.)
Delivery Hero has been operating in China since 2012, when it opened an office in Shanghai after acquiring local company Aimifan, which had been started by expat Lucas Englehardt, who still runs the Chinese business. It has since expanded to 19 cities and surrounding regions.
But the food business is not unlike the race among transportation startups. Both require significant cash injections as mere table stakes. This is not only to use on running, investing and improving existing operations, but to subsidise marketing and business development in a category where — both for users and the contractors the startups need to make their businesses work — there may be little in the way of brand loyalty.
And raise they do.
Baidu Waimai is supposedly collecting $500 million to invest in its logistics. Ele.me is reportedly raising $1.25 billion led by Alibaba, having already raised more than $1 billion in the past. Notably, Ele.me’s other investors include Uber’s big rival in China, Didi Kuaidi, which confirmed in November 2015 that it has put money into the startup in a strategic deal that will see Ele.me use Didi’s network of vehicles to help deliver food. And Yummy77 has picked up investment from Amazon.
Meanwhile, Meituan-Dianping, which also offers Groupon-style daily deals, announced a massive $3.3 billion round at an $18 billion valuation in January.
In that context, Delivery Hero’s vertical food-only business in China appears almost quaint in size, so you can see why the company is now looking for a buyer for the operations — and why now might be a useful time to try to sell it.
In many of these cases, the food businesses are aligning with the larger logistics plays. Uber, the big name in transportation services, has raised billions of dollars in venture capital to date — including hundreds of millions specifically for Uber China — but it has yet to enter the food race in that market. However, it has been building out UberEats in the U.S. and counts Baidu (backer of Baidu Waimai) as an investor.
On top of all this, Delivery Hero itself may be firming up its business for bigger battles. When it raised $110 million in 2015, the company, which has in the past competed with but is now partly owned by Rocket Internet, was considering this the last round ahead of an IPO, so this could be part of the company’s bid to improve its books and balance sheet ahead of a potential listing.
A shift from markets that are expensive to operate in could also mean more attention on new services: Delivery Hero has also been quietly working on a new B2B logistics platform called Valk Fleet.
Updated with number of employees affected.