Executives at restaurant food delivery startup Deliveroo may have felt a chill down their spine on Tuesday as Amazon announced tentative steps to move in on their territory by launching a restaurant food delivery service over the pond in Manhattan, New York.
Deliveroo is arguably the best-known restaurant food delivery company in the UK but one of the startup’s early employees is aware that there are other companies eyeing up the space it operates in.
Last Wednesday, before Amazon announced it was going to deliver food from 350 eateries across Manhattan, Dan Warne, Deliveroo’s managing director for the UK and Ireland, told Business Insider: “I’m sure there will be some much bigger fish who consider entering the market at some point. We say our core business is restaurants and bikes. We embrace anyone that comes in from another market. But we feel we’re in a very good position.”
Deliveroo, founded by former investment banker Will Shu and Greg Orlowski in 2012, pays a fleet of riders to pick up food from restaurants and deliver it to customers at their homes and offices. Deliveroo has two main revenue streams: it charges the restaurant a commission for every transaction, while the customer pays it a £2.50 delivery charge (+£2 if orders are less than £15).
The company, which has raised $200 million (£138 million) from well-known venture capitalists like Index and Accel, is facing increasing competition from rivals like Take Eat Easy and Jinn but so far it has evaded going head-to-head with tech giants like Amazon and Uber, who have publicly announced trials in their home country of the US, where Deliveroo does not yet operate.
The four-year-old startup has a number of plans up its sleeve to help it stay ahead of the competition. One of the most ambitious schemes involves putting shipping containers in car parks and turning them into kitchens that restaurants can use. Each container, known as a RooBox, is designed to help a restaurant process more Deliveroo orders, subsequently boosting Deliveroo’s own sales.
“Restaurants don’t necessarily have a back entrance to handle drivers or a second kitchen to handle deliveries,” explained Warne.
Warne said Deliveroo plans to put the RooBoxes in areas where there isn’t necessarily high footfall. “They don’t need to be in an area where there is a high cost of real estate, which allows us then to pass on that saving to the restaurant and let them operate in a way that is far more gross margin positive,” he said.
Deliveroo currently only has five RooBoxes across two London sites (a car park in Battersea and another in Dulwich) but there are plans to open several more across London and potentially in Deliveroo’s other markets as well. The food delivery service is currently available in 68 cities across 12 countries.
“This is something we’d like to scale,” said Warne. “With this product we have an opportunity to bring restaurants to another area. Where we know there will be demand. It allows us to get in. It’s much less risky for the restaurant. They don’t need to invest in fit out costs and rentals.
“For us it means the drivers can go straight in and pick the food up immediately. There’s no regular trade getting in the way of that so there’s no wait time for the driver at the restaurant.”
One restaurant that has bought into Deliveroo’s shipping container idea is Tommi’s — a burger joint with restaurants in Marylebone and Battersea. Tommi’s first started using the RooBox in February.
Tommi’s manager Robert Magnusson told Business Insider that the RooBox has allowed Tommi’s to test new markets and expand with low financial risk and overheads.
“We use them in the evenings from Monday to Thursday and a standard full day 11.30am-11.30pm on Friday to Sunday,” said Magnusson.
Warne said that Deliveroo takes an additional commission on restaurants that use the RooBoxes. “It varies from restaurant-to-restaurant,” he said. “We haven’t yet disclosed that [figure] publicly.”
Warne was also unable to be drawn on the size of Deliveroo’s customer base, the number of restaurants the company has partnered with or the number of couriers Deliveroo has on its books.
Deliveroo is also experimenting with wages, partly because it currently pays delivery riders by the hour, which means they often end up getting paid as they sit there waiting for jobs to come in.
Drivers typically get paid £7 an hour plus £1 for every delivery they make. Under the new contract, which is being trialled in Chiswick, they receive £4.25 per delivery but no hourly wage.
Some of the drivers involved in the pilot claim the new contracts will result in them being paid less than £7.20 an hour, which is lower than the minimum wage for people over the age of 25.
But Warne said: “Our drivers using this model have on average made significantly more money than they made on an hourly pay system, which is the regular system.
“If we want to get people to work when we have the work, then this is a model that’s worth testing. The results of the test will be based around how drivers feedback on it. It won’t be based on a couple of people and what they have said in an article. We will run a survey and see.
“We will likely run the test for another few weeks and then we will make a decision. If we choose to move forward with it then it will seamlessly run into the model for that area.”
Warne admitted that the new payment model won’t work for drivers in all areas, particularly those where Deliveroo doesn’t have enough volume for them to make good money.
As a result, it’s unlikely Deliveroo would ever role the payment model out everywhere.
When asked if this will lead to Deliveroo employing people on different wage structures across cities, Warne said: “It’s difficult to say now. I think we need to continue to trial this and ensure that it’s right for the drivers, us and the restaurants.”
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