Just Eat is one of the largest online food ordering companies in the world. Its core business activity is to help customers to order takeaway foods from a variety of restaurants in various cities. The company was incorporated in the UK in 2001 (Just Eat 2015). Currently, Just Eat operates in 10 European countries, India, Brazil, and Canada. This paper will analyse the competitive environment of the firm. The analysis will focus on the factors that shape competition and the competitors in the market. Recommendations will also be made based on the analysis to enable Just Eat to improve its competitiveness.
Factors Affecting Competition
The Food Standards Agency (FSA) established regulations that companies must comply with to ensure food safety and consumer protection. The regulations have become a source of competition since each company focuses on positioning itself in terms of ability to deliver safe and high quality food to avoid penalties (Robinson 2012). Since the UK is a member of the EU, it has had to allow several firms from the union to join its market. The resulting increase in the number of online food ordering companies has intensified competition.
The EU where most of Just Eat’s markets are located recorded very low economic growth in the last three years. In 2014, GDP in the EU grew by only 1.3% (European Commission 2015, pp. 1-190). Unemployment rate is expected to remain above 9% in the next three years (European Commission 2015, pp. 1-190). Low GDP and high unemployment rate are associated with low private consumption. This increases competition because Just Eat and its rivals must compete for the few customers who are able to use their services. GDP in the EU is expected to expand by 1.7% and 2.1% in 2015 and 2016 respectively (European Commission 2015, pp. 1-190). The increase will be supported by reduction in oil prices and depreciation of the euro. Improved economic growth will increase consumption, thereby alleviating competition.
Nearly 30% of citizens in the UK consume takeaways daily, which they often purchase through online ordering services (Hardwick 2014). Takeaways are also very popular in other EU countries because individuals are reluctant to face the challenges associated with cooking at home. Moreover, citizens prefer to have their meals delivered in their homes or offices rather than visiting restaurants to save time (Hardwick 2014). These social trends provide opportunities for market growth, thereby reducing competition. However, companies have to compete in terms of ability to deliver food within the shortest time possible to retain customers.
Internet technology is a very important determinant of competition since it facilitates provision of online food ordering services. Companies with the fastest internet and websites that can be accessed using a variety of devices such as computers, smartphones, and tablets are able to attract customers easily (Robinson 2012). In addition, firms with a variety of safe online payment options are able to sell to more customers than companies with only offline payment methods.
Porter’s Five Forces Analysis
The main suppliers in the industry are restaurants that prepare a variety of foods that are distributed by online distribution companies. Suppliers have moderate bargaining power. A single supplier cannot influence the fees charged by online food ordering companies due to the large number of restaurants. However, suppliers have low switching costs since they can easily work with any online food ordering company of their choice (Robinson 2012). This increases their bargaining power. Moreover, some restaurants have their own online ordering systems. Therefore, every firm must improve its competitiveness by investing in very efficient delivery systems to retain their suppliers. Brand image is another factor that increases supplier power. Restaurants that are known for providing high quality meals have high sales turnover and prefer to work with only efficient online distributors. Generally, firms that sell foods from the best restaurants are able to overcome competition.
Consumers of takeaways are the main buyers in the industry. Buyers have moderate bargaining power. A single buyer cannot easily drive down prices due to the large number of consumers in the market. This improves the competitiveness of Just Eat and its competitors by allowing them to avoid price-based competition (Kazini 2007, pp. 23-45). Nonetheless, buyers have very low switching costs, which improve their bargaining power. They do not have to incur any significant cost to shift from one company to another since ordering service providers are readily available on the internet. Buyers often choose service providers based on food quality, ease of delivery, and user fee. Therefore, buyers influence competition based on service quality. Companies whose services meet the expectations of buyers in terms of price, quality, and delivery time attract a large number of customers and vice versa.
Threat of Substitution
The key substitutes include visiting restaurants and cooking at home. The threat of substitutes is high because most buyers live and work in locations where restaurants are readily available. For instance, most commercial buildings in major cities have restaurants. Moreover, there are restaurants in virtually every street in large cities such as London. This means that buyers can easily visit restaurants to avoid the cost of ordering food through the internet. Concerns over the health effects of consuming fast foods and transporting meals also make takeaways unattractive (Robinson 2012). High threat of substitution is a significant source of competition since online ordering services have to compete with alternative ways of accessing food. In this respect, companies have to demonstrate that their services offer superior value. This involves ensuring convenience and allowing customers to choose a variety of foods easily.
Threat of New Entrants
New entrants pose significant (high) threat due to the low cost of joining the industry. A firm that intents to serve the market only needs to invest in an effective website and delivery system, which do not require a significant amount of capital. In the last three years, venture capitalists and capital markets in the EU showed great interest in financing e-commerce startups. For instance, Delivery Hero and Foodpanda raised USD 350 million and USD 20 million in 2014 from venture capitalists respectively (Ohr 2014). Just Eat raised 1.37 billion euros through an IPO, whereas Takeaway raised 73 million euros from venture capitalists (Ohr 2014). Availability of funding allows new companies to join the market easily. New entrants increase competition because incumbents must focus on building a strong brand image and long-term relationships with the best restaurants and customers to defend their market shares.
Competition is very high because of the large number of firms that are competing for the existing customers. Most firms focus on differentiating their services to attract and retain customers. The industry is labour intensive since hundreds of employees have to be hired to deliver food in time. This increases operating costs, which in turn limits the amount of capital that can be invested in marketing and improving service quality (Kazini 2007, pp. 45-89). The implication of the high competitive rivalry is that firms that are not able to offer excellent services will run out of business or incur heavy losses as they lose market share.
The main firms that Just Eat competes with include Foodpanda, Takeaway, EatFirst, and Delivery Hero. The main strength of Foodpanda is that it serves customers in more than 40 countries (Foodpanda 2015). Thus, its market share is larger than that of Just Eat, which operates in only 13 countries. Foodpanda has also partnered with over 45,000 restaurants, whereas Just Eat cooperates with only 40,000 restaurants. This means that Foodpanda offers customers more choices than Just Eat. Nevertheless, Foodpanda still lacks a strong brand image and market knowledge since it has been in operation for only 3 years, whereas Just Eat has served the market since 2001.
Delivery Hero provides the widest variety of meals since it has partnered with over 90,000 restaurants. Moreover, its global market share is bigger than that of Just Eat because it serves customers in 24 countries. EatFirst’s main strength is its ability to deliver food in just 15 minutes, which is the shortest delivery time (Delivery Hero 2015). However, it does not distribute a variety of foods since customers can only choose between two meals that are prepared by the firm’s employees. Takeaway offers a variety of meals that are prepared by nearly 27,000 restaurants (Takeaway 2015). However, nearly 95% of its services are provided in only four countries in Europe (Ohr 2014). Overall, Just Eat is facing high competition from its rivals, which are expanding very fast.
First, Just Eat should focus on expanding its market share by joining new markets that are underserved (Kazini 2007, pp. 56). For instance, it can join emerging markets in East Europe, Asia, Latin America, and Africa to increase revenue and profits. Currently, Foodpanda is the only large firm that operates in some of the emerging markets (Foodpanda 2015). This means that emerging markets have low competition.
Second, the firm should improve service quality to overcome competition. It should focus on enhancing consumer choice by collaborating with more restaurants across the world. It should also reduce delivery time and enhance food safety. Improved service quality will enhance customer satisfaction and loyalty. Thus, the company will be able to increase its market share and profits. Finally, Just Eat should embark on cost reduction (Kazini 2007, pp. 120). Cost savings will allow the firm to charge low prices to overcome competition. Moreover, it will have adequate funds to market its services.
Competition is very high in the online food ordering market. The main factors that determine competition include technology and social trends. Advanced internet technology allows firms to deliver high quality services to customers. Moreover, social trends such as increased preference for takeaways promote market growth. The competitive environment is also characterised by high threat of substitution and new entrants. Although buyers and suppliers have moderate bargaining power, their low switching costs increase competition. Just Eat must improve its service quality to counter competition from its main competitors such as Foodpanda and Delivery Hero.
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