AMZN Amazon.com Inc

By Parmy Olson 

LONDON -- Amazon.com Inc. is investing in British food-delivery company Deliveroo, becoming one of the startup's biggest investors and signaling a continued interest in a sector that has confounded the e-commerce giant and others.

Deliveroo said Friday it raised $575 million in a recent funding round led by Amazon. The money will help fund its battle with Uber Technologies Inc.'s Uber Eats service to meet growing consumer demand for delivered meals. It injects another big dollop of cash in an industry already feasting on capital from SoftBank Group Corp. and other deep-pocketed investors that is fueling cutthroat competition and little in the way of profit.

U.S. delivery company DoorDash Inc. also is angling for more money, working on a new round of financing that could value it at close to $13 billion, according to people familiar with the situation. That would be nearly double the $7.1 billion valuation investors gave the San Francisco-based company in February, and almost 10 times what it commanded in early 2018.

The latest funding round for Deliveroo values it at about $3.5 billion, according to a person familiar with the matter. That is up sharply from the approximately $2 billion for its previous funding round in September 2017.

Deliveroo, whose delivery bikes are almost as common a sight on the streets of London as the city's black cabs and double-decker buses, competes with Uber Eats and other services in the U.K. and 13 additional markets. Other backers in the new fundraising included investment firms T. Rowe Price Group Inc. and Fidelity Management and Research Co. Amazon and Deliveroo didn't disclose how much the e-commerce giant invested, nor give a valuation.

The new deals underscore the long-term promise some big investors see in online delivery. SoftBank is an investor in DoorDash and in Uber -- whose chief executive at one point also pondered an investment in DoorDash, The Wall Street Journal has previously reported. Postmates Inc., another San Francisco-based delivery service, has raised almost $700 million in private capital and filed to go public in the coming months.

Amazon's investment reflects its fascination with finding ways to get all kinds of goods -- from big appliances and furniture to groceries and prepared meals -- in the hands of consumers as quickly as possible. The Seattle-based company has been building out its own delivery operations as part of that effort, pitting it against traditional logistics companies and startups to hire drivers. Amazon said earlier this month it would start paying some of its employees to quit and set up their own small businesses to deliver packages for the company.

Amazon launched its own restaurant-delivery service in the U.K. in 2016, but closed it late last year. It offers such a service in the U.S. in about 20 cities, according to its website.

"We're impressed with Deliveroo's approach," said Doug Gurr, Amazon U.K.'s country manager. "We're excited to see what they do next."

Consumers increasingly expect the meals and groceries they order online to arrive at their homes as expeditiously as clothing and household goods. Brokerage firm William Blair estimates delivery will account for 10% of restaurant sales by 2022.

But food delivery so far has been largely unprofitable. Coordinating drivers is costly, and restaurant operators say the fees that delivery companies charge leave them scant profit on meals they send out the door. A few, such as Olive Garden owner Darden Restaurants Inc., have wagered they are better off not trying.

Shares in Grubhub Inc., a food-delivery forerunner that went public in 2014, have fallen nearly 60% from their all-time high last year. The Chicago-based company reported a 78% drop in profit in its latest quarter to $6.9 million, while revenue grew 39% from a year earlier.

The prospect of Amazon's involvement in online meal delivery appeared to concern investors in Deliveroo's rivals. On Friday, shares in U.K.-listed Just Eat PLC dropped 9% and Germany's Delivery Hero SE fell 4.7%. Grubhub shares fell 1.8%, and Uber dropped 2.5%.

One impediment to profit is the continuing stream of capital into the delivery sector, which helps subsidize delivery costs in pursuit of market share.

DoorDash, which raised $400 million in February, is aiming to raise between $650 million and $750 million in its new round at a $12 billion valuation before the new investment, one of the people said. After the addition of funding in that range, the valuation would approach $13 billion. The Information earlier reported some details of DoorDash's fundraising effort.

Including its newest round, Deliveroo has raised a total of $1.53 billion, it said. Deliveroo makes money by charging restaurants a commission of roughly 10% to 20% and customers a flat fee of roughly GBP3 ($3.80) per order. The company isn't profitable globally but is in London and other U.K. cities where it has operated the longest, a spokesman said.

Deliveroo said it would use the new money to build up its engineering team in London and expand in existing markets.

The service launched in London in mid-2013, three years before Uber Eats launched in the U.K. capital. Deliveroo Chief Executive William Shu co-founded the company after working as an investment-banking analyst for Morgan Stanley in London. Mr. Shu worked as one of the company's first delivery drivers for months to learn how to plan the most efficient routes.

The company's original model involved dispatching delivery drivers to restaurants that didn't have their own takeout service. In recent years it has expanded by setting up its own kitchens where restaurant operators can cook food for delivery. It now has 215 such kitchens. Deliveroo works with about 80,000 restaurant and takeout outlets. it

Deliveroo doesn't have a presence in the U.S. but operates in various markets in Europe, Asia-Pacific and the Middle East.

In Singapore, the company has experimented with expanding its kitchen service to allow customers to dine in an area where several of Deliveroo's restaurant partners serve food under one roof. Customers can order through the Deliveroo app.

For Amazon, the investment marks the retailing giant's latest overseas bet.

Amazon has long been expanding overseas, building revenue for its global online shopping platform, but also buying or joining with local firms. The Journal reported earlier this year that Amazon is in talks to merge its e-commerce business for goods imported into China with a Chinese competitor, NetEase Inc.'s Kaola. In 2004, it bought Joyo.com, at the time the China's biggest online vendor for books, video and music. In 2017, Amazon bought Dubai-based Souq.com for $580 million.

Deliveroo said the investment from Amazon would be completed in the coming months, following regulatory approvals.

--Yuliya Chernova contributed to this article.

(END) Dow Jones Newswires

May 17, 2019 18:27 ET (22:27 GMT)

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