Today’s news that Just Eat has raised $64m to complete their European conquest and continue their expansion outside Europe (India, Canada, Brazil, etc.) is validation of a both a winning recipe and talented team of chefs. As with all businesses however the path to success curved around many blind corners. When Index Ventures first invested in 2009, the seeds of success may have been sown, but a number of risks and challenges lay ahead for the Company. I’ve gone back to my original notes from 2009 to look at risk factors my colleagues and I identified and the key questions we discussed before our original investment and provided a brief update on how the Company has progressed.
All we really knew reliably back then was that the business seemed to work very well in Denmark. The Company also had a foothold and very slender early mover advantage in the UK and embryonic operations in a few other countries. We were impressed by the team and there were a number of other positives.
1. Concept risk – will different food cultures and eating habits mean the Just Eat proposition doesn’t resonate in all the target markets?
Very limited data is available on the size and structure of the delivery and take-out industry in different countries. We had the sense that it was big in the UK which has the “trinity” of take-out cuisines (Pizza, Indian, Chinese) unlike other markets where Pizza predominates, but whether online ordering would appeal in multiple markets, particularly Southern Europe was unproven. If we roll forwards three years Just Eat has validated its model in 13 territories on 4 continents, including markets with vastly different eating habits and levels of online penetration. This is clearly a global phenomenon.
2. Competition – will multiple ordering networks emerge in each territory increasing dramatically the cost of building the network and acquiring consumers?
At the time we invested, various other investors were not so excited as we were about the take-away sector. I suspect to many the idea of backing a business with field sales walking the streets of every town and city somehow didn’t have the sex appeal of some other internet sectors. If we wind the clock forward three years, many investors and entrepreneurs have witnessed the rapid growth of Groupon and now any business linking local merchants to the internet is seen as potentially attractive to investors. Competitors to Just Eat have emerged in many countries and include many venture-funded competitors. However the complexities of managing a sales team and technology platform and providing a compelling consumer front end is not easily replicated. In spite of competition, Just Eat is probably 4x the size of the closest European competitor and around 2x the size of the closest global competitor.
3. Execution risk – Can one team manage aggressive growth in multiple countries?
This has been a massive challenge and one of the greatest strengths of the Just Eat team has been their ability to manage this complexity. Multiple countries means facing multiple competitors, operating in multiple legal and cultural environments, running multiple marketing campaigns and is some cases where Just Eat has made acquisitions integrating multiple tech platforms. It is easy for a whole company to be dragged down to level of the lowest common denominator in the network. In the case of Just Eat however the network has accelerated not decelerated the path to best practice. Close and structured cooperation between countries allows testing different ideas in multiple markets and rapidly adopting the best practice observed in one country across the entire Just Eat group.
4. Brand-building – will consumers really grow to love and trust the brand or will Just Eat keep having to ‘re-acquire’ customers?
When Index Ventures analyse consumer internet businesses we look carefully at two things:
- Repeat purchase behaviour;
- Proportion of traffic which comes direct or viral versus through paid marketing activities.
Often we come across businesses that have a “business model” (i.e. Customer Lifetime Value > Subscriber Acquisition Cost) but still no real brand (low proportion of direct traffic, limited repeat purchase). The danger of investing in the former type of business even if it seems to be working at the time is that SAC is always dangerous to predict going forwards. Changes to Google algorithms, irrational marketing spend from competitors and other items can impact this and turn a good business model into a bad one.
At Just Eat they have always understood this and focused both on tactical marketing but also long term brand-building. A culmination of this in the UK occurred in February when Just Eat overtook Domino’s to become the most visited UK food and beverage website
There are still many challenges and opportunities ahead for Just Eat – more customers, more countries and probably more acquisitions. Also the need to leverage new technology platforms as they emerge to help restaurant partners do business and to provide an ever more seamless consumer experience. There could be no better team to pull this off and as an investor am delighted to have Vitruvian Partners joining for the next stage in the Journey.