Just Eat keeps rising, but will it lose its zing?

Shares in Just Eat don’t seem to know how to do anything but rise, but it’s not alone, take Zing Zing, for example - the food delivery market is looking busy.

Article updated: 18 January 2018 10:00am Author: Michael Baxter

But is it in danger of looking overcrowded? One of the reasons why tech’s get to enjoy such enormous valuations is that the market they operate in is creates natural monopolies, or at least natural oligopolies.

Take the iPhone. The more people who own one, the more reasons there are for third parties to develop apps, and the more apps there are means the more reasons to buy an iPhone. The appeal of the product is a direct result of market penetration.
Or take Facebook, it would lose its appeal if some people preferred a product called MySpace, others used Friends Reunited. The more people who use Facebook, the greater the reason to use it.

But what we do see are niches - furthermore niches that are compatible with each other, so in the social media space we have Twitter - which I use as a research tool - LinkedIn, plus SnapChat and Instagram.

The online TV on demand market seems to be best suited for an oligopoly - a small number of companies. To succeed, each company must have scale in order to be able to create the volume of content customers need, but I doubt whether many customers will want more than three of four subscriptions.

Or there is the Uber market - I wonder whether Uber will eventually become a little like Hoover, its name will become synonymous with the car sharing economy, but unless its management start getting PR and human relations right, it may not survive. But, the Uber market, whether Uber is part of it or not, creates natural monopolies - you need your taxi app to tell you where all taxis are, not just some of them.

Takeaways

This may not be the case with the food delivery market.

Just Eat is a phenomenon. Its share price has risen from 290p in April 2014, when it had its IPO, to 775p, as I write.
And now it has joined the FTSE 100, with a market cap of £5.27 billion. That for a company founded in 2001. It now has 19 million customers and delivers food from 28,000 restaurants across 12 markets.

These are impressive numbers, but it is also competing with Deliveroo - at first, Just Eat concentrated on independent restaurants that focused on making food to be eaten at home. But Ubereat and Deliveroo focus on delivering food from high quality restaurants - and that’s the market Just Eat is also now trying to tackle.

But this is not a business that seems to be screaming out ‘natural monopoly’. And how long, I wonder before Amazon makes its move. Amazon is not without its flaws, but right now the momentum is with this company. I would not be surprised to see it become bigger than Apple within a few years.

Zing Zing

There is new player in town - at least there is if your town is North London. Zing Zing delivers Chinese food and is currently raising money via Crowdcube.

But there is something different about Zing Zing - it prepares the food it delivers. Furthermore, the food is healthy, monosodium glutamate free, and focuses on quality.

Its founder, Josh Magisdon, sold his previous business to Just Eat. Recently he said: “We wanted to change the Chinese takeout industry for the better, using high quality ingredients with the speed and service of a tech start-up. London’s restaurant scene has exploded over recent years, but take-outs and deliveries are still lagging behind in terms of quality and style. This Crowdcube campaign will unlock our next phase of growth, funding new stores across London, before we expand across the UK.”

Barriers to entry

I am a fan of the long tail - the internet creates niche markets operating within niche markets. Zing Zing is tackling a small niche within the food delivery market. But I wonder - frankly I hope - that we will see massive fragmentation. This fragmentation is not just about food delivery. We will see it in banking too - the age of banks selling a myriad of products is ending, instead Fintech is creating specialists. And I would say ditto for shopping. This is where the long run threat to Amazon lies. The company may indeed be no more than a couple of years from becoming the world’s biggest company, but beyond that, niche players may slowly unpick its empire.

The way in which the likes of Zing Zing are disrupting the food delivery market is just an early example of this.


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Michael Baxter portrait photo
Michael Baxter

Economics Commentator

Michael is an economics, investment and technology writer, known for his entertaining style. He has previously been a full-time investor, founder of a technology company which was floated on the NASDAQ, and a director of a PR company specialising in IT.