Below is a statement from the CEO of PREODAY - Andrew White. In it he calls out the Just Eat / Hungryhouse merger, describing it as a “potentially awful fallout” for the industry should the merger go ahead. He quotes from Just Eat’s response to the CMA investigation - which is scathing in parts. Curiously, Just Eat refers to Preoday as its competitor within the Response and offers it up as a competitive restraint and reason why it should be allowed to complete the takeover….
In late 2016, Just Eat committed £300m towards buying rivals Hungryhouse and SkipTheDishes. In May 2017, the Competition & Markets Authority (CMA) suspended Just Eat’s £200m acquisition of Hungryhouse until 2nd November to give it time to investigate the legality of the move.
Just Eat and Hungryhouse take online orders from customers and act as middlemen, existing between consumers and the restaurants.
The CMA is concerned that the combination of the two companies will mean worsened terms for restaurants and consumers at a time when mobile and digital ordering is being seen as necessary by restaurants for future proofing their business. The demand for home deliveries of ready-to-eat food grew 10 times faster than for dining out last year (NPD Group).
How is Just Eat reacting?
The short answer is badly. It has responded to the CMA’s investigation with a scathing document. Below are a few quotes from that document. Have a look, it’s an amazing read.
• “HH [Hungryhouse] is a weak constraint on JE [Just Eat] today.”
• “HH has lost this “winner-takes-all” market to JE, as evidenced by its small market share of orders (less than one-tenth the size of JE) and total restaurant offering (less than 40% of the size of JE) and its even smaller share (less than 15% of HH’s restaurant base) of “unique” restaurants.”
• “80-90% of HH restaurants are also listed on JE, with 30-40% of HH’s restaurants being unique to HH.”
• “There is no realistic prospect of HH achieving a competitive position in the future.”
What do Just Eat’s intentions mean for the industry?
Remember Just Eat’s assertion that the “the winner takes all”? This indicates, as much as anything, Just Eat’s intended position.
Competitors and customers of Just Eat need to watch this investigation closely, once a decision is made, there’s no going back. In order to get the deal done, Just Eat and Hungryhouse need to placate the CMA and offer concessions; the CMA is bound to have been irritated by their behaviour during the process so far.
However, if Just Eat doesn’t get what it demands and rejects what the CMA is asking for it will likely withdraw their bid. Hungryhouse will then be crippled and, ironically, be an even easier and cheaper target for Just Eat to displace.
In either event, competitors to the merging firms should be concerned whether a dominant Just Eat could use its market power to commit restaurants to exclusivity and/or longer contract terms, force non-competitive pricing or push for higher commission levels that impose a potentially fatal squeeze. Most restaurants have a slim margin of around 10%, and Just Eat already charges 13-14% commission.
Just Eat’s revenue and profits are rocketing and have been added to yet again. Is that because its service is improving or because it’s turning its lock on the market? Staying silent on this matter will deliver an outcome which fails to benefit consumers and restaurants alike and will lead to a market disaster.
Just Eat’s admission
There is an emerging and fast-growing hope and alternative which Preoday is very pleased to be part of. While Just Eat and Hungryhouse are middle-men, sitting between customers and restaurants, providers of white-label mobile and online ordering technology like Preoday enable customers to interact directly with restaurants through these digital channels. As a reluctant but subtle admission, Just Eat recognises the genuine threat to its monopoly and writes in the same document above:
“The SLC [lessening of competition] decision understates the importance of direct ordering. It has become increasingly cheaper for restaurants to offer their own online ordering interface (or use a third party to build their own – e.g. Preoday), and restaurants often seek to steer consumers away from aggregation platforms to direct ordering via their own websites and apps. These findings confirm that direct ordering continues to be an important competitive constraint [to Just Eat] in the market.”
Interestingly, Just Eat nominates Preoday as the foremost alternative to it and its business model. Preoday is a commission-free and direct ordering platform product, run by the restaurants themselves, which enables them to control their expenses and own all their customer data.