Last week, Deliveroo made news when it announced that it was preparing to leave the Spanish market. The recently listed Deliveroo put its explanation in market terms, noting that its market position in on-demand delivery in Spanish was not sufficient to warrant continued investment. Not to mention: a Spanish legal change require companies that previously relied on independent couriers to hire their delivery staff.
Race Capital’s Edith yeung helped explain Deliveroo’s choice to The Exchange, saying that the Spanish market does not have a very large population, which may mean that the “potential advantage of being number 1 in Spain has [a] the ceiling.”
While he noted that he does not have access to Deliveroo data, his statement coincides with the company’s own comment that Spain accounted for less than 2% of its aggregate gross transaction value (GTV) in the first half of 2021.
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A company exiting a market is no big deal, but we were curious about Deliveroo’s feedback on the need for market leadership, or something close, to ensure continued investment. Is this the common reality for startups struggling for market position, regardless of whether those markets are cities or countries?
Some startup markets have tended toward monopolies or duopolies. The Uber-Didi battle in China led companies to agree to stop competing. Uber too recently sold its Uber Eats business in India to Zomato. In the United States, the smaller competitors of Uber and Lyft have long been forgotten and both American giants continue to fight for dominance.
There are other familiar examples of this consolidation trend. The food delivery game is concentrated among the major players. Postmates failed to survive as an independent company, ending as part of Uber’s operations. GoPuff may be able to gain a foothold in the market, but DoorDash and Uber Eats together accounted for 83% of the food delivery business in the US in June of this year. per second Measurement data.
Not surprisingly, some startup markets are leaning toward monopolies or duopolies. Many countries protect intellectual property through patents that can limit innovation to one or two players for an extended period. Monopolies can also emerge when a new technology or business method is invented: Google’s internet analytics search technology led to a near monopoly in many markets, for example.
In companies where efficiencies of scale have a big effect, monopolies can form when major players consolidate smaller competitors until only one or two companies remain. Standard Oil is the canonical example of this process.
The interesting thing about the on-demand delivery market is that it is incredibly expensive but not very difficult to access technologically, which has meant that many companies have entered the sector around the world. This means that on-demand delivery is the opposite of other patent-protected markets from which we might expect monopolies to form or competition to die out beyond the two main players.
However, it is also an industry in which economies of scale can play a key role in generating profits, and increased competition can lead to price wars and advertising disputes. It is a mature market, then, for consolidation, even if it lacks an exploitable intellectual property base.