Africa Roundup: Nigerian fintech gets $360M, mints unicorn, draws Chinese VC

November 2019 could mark when Nigeria (arguably) became Africa’s unofficial capital for fintech investment and digital finance startups.

The month saw $360 million invested in Nigerian focused payment ventures. That is equivalent to roughly one-third of all the startup VC raised for the entire continent in 2018, according to Partech stats.

A notable trend-within-the-trend is that more than half — or $170 million — of the funding to Nigerian fintech ventures in November came from Chinese investors. This marks a pivot in China’s engagement with Africa to tech. We’ll get to that.

Before the big Chinese backed rounds, one of Nigeria’s earliest fintech companies, Interswitch, confirmed its $1 billion valuation after Visa took a minority stake in the company. Interswitch would not disclose the amount to TechCrunch, but Sky News reporting pegged it at $200 million for 20%.

Founded in 2002 by Mitchell Elegbe, Interswitch pioneered the infrastructure to digitize Nigeria’s then predominantly paper-ledger and cash-based economy.

The company now provides much of the tech-wiring for Nigeria’s online banking system that serves Africa’s largest economy and population. Interswitch offers a number of personal and business finance products, including its Verve payment cards and Quickteller payment app.

The financial services firm has expanded its physical presence to Uganda, Gambia and Kenya . The Nigerian company also sells its products in 23 African countries and launched a partnership in August for Verve cardholders to make payments on Discover’s global network.

Visa and Interswitch touted the equity investment as a strategic collaboration between the two companies, without a lot of detail on what that will mean.

One point TechCrunch did lock down is Interswitch’s (long-awaited) and imminent IPO. A source close to the matter said the company will list on a major exchange by mid-2020.

For the near to medium-term, Interswitch could stand as Africa’s sole tech-unicorn, as e-commerce venture Jumia’s volatile share-price and declining market-cap — since an April IPO — have dropped the company’s valuation below $1 billion.

Circling back to China, November was the month that signaled Chinese actors are all in on African tech.

In two separate rounds, Chinese investors put $220 million into OPay and PalmPay — two fledgling startups with plans to scale in Nigeria and the broader continent.

PalmPay, a consumer oriented payments product, went live last month with a $40 million seed-round (one of the largest in Africa in 2019) led by Africa’s biggest mobile-phone seller — China’s Transsion.

The startup was upfront about its ambitions, stating its goals to become “Africa’s largest financial services platform,” in a company release.

To that end, PalmPay conveniently entered a strategic partnership with its lead investor. The startup’s payment app will come pre-installed on Transsion’s mobile device brands, such as Tecno, in Africa — for an estimated reach of 20 million phones.

PalmPay also launched in Ghana in November and its UK and Africa based CEO, Greg Reeve, confirmed plans to expand to additional African countries in 2020.

OPay’s $120 million Series B was announced several days after the PalmPay news and came only months after the mobile-based fintech venture raised $50 million.

Founded by Chinese owned consumer internet company Opera — and backed by 9 Chinese investors — OPay is the payment utility for a suite of Opera developed internet based commercial products in Nigeria. These include ride-hail apps ORide and OCar and food delivery service OFood.

With its latest Series A, OPay announced it would expand in Kenya, South Africa, and Ghana.

Though it wasn’t fintech, Chinese investors also backed a (reported) $30 million Series B for East African trucking logistics company Lori Systems in November.

With OPay, PalmPay, and Lori Systems, startups in Africa have raised a combined $240 million from 15 Chinese investors in a span of months.

There are a number of things to note and watch out for here, as TechCrunch reporting has illuminated (and will continue to do in follow-on coverage).

These moves mark a next chapter in China’s engagement in Africa and could raise some new issues. Hereto, the country’s interaction with Africa’s tech ecosystem has been relatively light compared to China’s deal-making on infrastructure and commodities.

There continues to be plenty of debate (and critique) of China’s role in Africa. This new digital-phase will certainly add a fresh component to all that. One thing to track will be data-privacy and national-security concerns that may emerge around Chinese actors investing heavily in African mobile consumer platforms.

We’ve seen lines (allegedly) blur on these matters between Chinese state and private-sector actors with companies such as Huawei.

As OPera and PalmPay expand, they may need to do some reassuring of African regulators as countries (such as Kenya) establish more formal consumer protection protocols for digital platforms.

One more thing to follow on OPay’s funding and planned expansion is the extent to which it puts Opera (and its entire suite of consumer internet products) in competition with multiple actors in Africa’s startup ecosystem. Opera’s Africa ventures could go head to head with Uber, Jumia, and M-Pesa — the mobile money-product that put Kenya out front on digital finance in Africa before Nigeria.

Shifting back to American engagement in African tech, Twitter and Square CEO Jack Dorsey was on the continent in November. No sooner than he’d finished his first trip, Dorsey announced plans to move to Africa in 2020, for 3 to 6 months, saying on Twitter “Africa will define the future (especially the bitcoin one!).”

We still don’t know much about what this last trip — or his future foray — mean in terms of concrete partnerships, investment, or market moves in Africa from Dorsey and his companies.

He visited Nigeria, Ghana, South Africa and Ethiopia and met with leaders at Nigeria’s CcHub (Bosun Tijani), Ethiopia’s Ice Addis (Markos Lemming), and did some meetings with fintech founders in Lagos (Paga’s Tayo Oviosu).

I know most of the organizations and people Dorsey talked to pretty well and nothing has shaken out yet in terms of partnership or investment news from his recent trip.

On what could come out of Dorsey’s 2020 move to Africa, per his tweet and news highlighted in this roundup, a good bet would be it will have something to with fintech and Square.

More Africa-related stories @TechCrunch

African tech around the ‘net

American Express launches new in-app restaurant reservation booking following its Resy acquisition

Earlier this year, American Express announced it was acquiring Resy, the New York-based restaurant reservation platform whose software was used by 4,000+ restaurants across 10 countries. This week, the company has taken the next step to now integrated Resy’s system within the Amex Mobile App. In a new restaurant booking feature, Resy’s inventory will be combined with the American Express Global Dining Collection and other partners, including BookTable and SevenRooms, to offer cardholders reservations from over 10,000 restaurants worldwide.

Currently, this restaurant-booking feature will be available only to a portion of Amex’s Platinum Card Member base. But American Express says the plan is to roll out the feature more broadly in the months ahead.

The company says its decision to go this route was driven by customer activity. Dining is a top spending category among cardholders and the number one request through the Platinum Concierge service — a premium perk that’s like having an assistant work for you to research travel, find gifts, or make dinner reservations, for example.

Resy fits in with Amex’s larger goal of providing services to cardholders that can help connect them to unique experiences, as its platform can be used to acquire reservations even at newer, hipper and hard to get into restaurants.

Before its acquisition, Resy’s software for restaurants had managed to steal market share away from OpenTable, thanks to its advances in table management solutions for restaurant owners, which includes features like an adaptive optimization engine, business intelligence capabilities, and the ability to combine different scheduling strategies, like slots and a more dynamic flex system. This system and the consumer-facing booking options continue to be available through Resy directly, even if users aren’t Amex members.

Resy was the latest in a string of Amex acquisitions aimed at expanding its Global Dining Program. Amex also bought Japan-based restaurant booking service Pocket Concierge in January, and U.K. fintech startup Cake Technologies, designed to help people more easily pay their restaurant bill.

More broadly, these acquisitions aim to help Amex become more central to its customers’ lives, the company had said at the time of the Resy deal. And that’s just as important as the points program.

In addition, by building more digital services into its app, Amex aims to better serve an increasingly mobile and tech-savvy audience. The company says that 84% of its card members now use the app or website to interact with the company, and it’s seen a 35% year-over-year increase in daily active American Express mobile app users globally.

The new in-app reservation booking tool will become available to the larger Platinum and Centurion Card Member base by 2020, following this week’s more limited launch.

Inside Prosus Ventures’ $4.5 billion bet on India

Prosus Ventures last week filed a hostile offer for British food delivery startup Just Eat, an attempt to defeat a unanimous rejection from its board and simultaneously fend off a bid from rival Takeaway.

The giant Naspers spinoff said it was willing to pay as much as $6.3 billion in cash to lure Just Eat, one of Europe’s largest foodtech players.

Prosus’ major bet on online food startups shouldn’t come as a surprise; the recently-listed subsidiary, whose parent firm has invested in companies in more than 90 nations, has shown a great appetite for food delivery startups globally.

How deeply Prosus believes in foodtech is perhaps on display in emerging markets such as India, one of the most buzziest nations for the investment firm, where the unit economics doesn’t work yet for almost any internet startup and probably won’t for another few years.

Prosus Ventures’ investments in food delivery startups globally

Last year, South Africa-based Naspers led a $1 billion financing round for Indian food delivery startup Swiggy. The investment firm contributed $716 million to the round, just shy of the roughly $750 million that Swiggy’s chief rival, Zomato, has raised in its 11 years of existence.

TechCrunch spoke with Larry Illg, CEO of Prosus Ventures and Food, and Ashutosh Sharma, head of investments for India at the venture firm, to understand how significant foodtech is for the investment firm and the bets it is making in India.

Swiggy

“We had a thesis on food delivery globally,” said Illg, describing the company’s first search for a food delivery company in India. “We knew that at least one big player will be there in India in the future. We went around the town and spoke to a lot of startups.”

And then they found Swiggy. But, Illg said, it was a very different Swiggy from the one that currently dominates the Indian market. “So here was a food delivery startup that was already profitable. The only challenge was that it was operational in just six cities in India.”

And thus began Naspers’ journey to convince Swiggy to expand its service nationwide. Now operational in more than 130 cities around the country, Swiggy today competes with Zomato, UberEats, and Ola-owned FoodPanda (now known as Ola Foods).

Prosus Ventures’ Sharma, who heads India business, cautioned that it is early for food startups in India. “I want to say we are on day one, but it might as well be day zero. The number of smartphone users in India who are ordering food online is still less than 2%,” he said.

But even this nascent category has attracted some tough competitors. While UberEats and Ola’s Foods are struggling to make a significant dent, Swiggy and Ant Financial-backed Zomato are locked in an intense battle.

Both companies, according to industry reports, are losing more than $20 million each month. Zomato was burning about $45 million each month a year ago, Info Edge, a publicly-listed investor in the startup revealed in its recent earnings call with analysts.

Illg is not really bothered with the frenzy cash burn in India’s food delivery market, and said Prosus has no shortage of cash, either.

That cash might come in handy very soon. A source at Zomato told TechCrunch that the company is in talks to raise as much as $550 million in a round led by Ant Financial .

TechCrunch reported earlier this year that Zomato is quietly setting up its own supply chain to control the raw material its restaurant partners use. Two sources familiar with Zomato say the food delivery startup is thinking of expanding beyond delivering food items.

Earlier this year, Swiggy announced that its delivery fleet can now move just about anything from one part of the city to another. The service, called Swiggy Go, is currently limited to select cities. Zomato plans to replicate this, sources say. Neither of these developments have been previously reported.

Additionally, cloud kitchens are current area of focus for Swiggy. This week, the company announced it has established more than 1,000 cloud kitchens in the country, more so than any of its rivals.

Illg said cloud kitchens are crucial for a country like India, which has a low density of restaurants. “We have the visibility of all the market dynamics,” he said. “We can look at a location, comb through the data and know what kind of restaurants and food supplies would work there.”

Brava, a smart oven maker with big names attached, just sold to an industrial equipment company

Brava had a lot of things working in its favor as startups go. It was founded in 2015 by serial executive John Pleasants, whose past stints have included as co-president of Disney Interactive Media Group, COO of Electronic Arts, and CEO of Ticketmaster.

His plans to create a suite of snazzy direct-to-consumer line of smart hardware and software products, beginning with the Brava oven, also attracted tens of millions of dollars from an impressive line-up of backers, including True Ventures, TPG Growth, and Lightspeed Venture Partners, among others. Indeed, though some sophisticated kitchen devices have come and gone (Juicero), some liked what Pleasants and his growing team in Redwood City, Ca., were trying to cook up, and one of these admirers, apparently, was the Middleby Corporation, a publicly traded commercial and residential cooking and industrial process equipment company in Illinois that just acquired Brava — though neither Brava nor Middleby is disclosing terms of the deal.

We were in touch via email yesterday with both Pleasants and the CEO of Middleby, Tim FitzGerald, to learn what they can share about the tie-up, as well as to ask what happens to Brava and its tens of employees now.

TC: This was a young company. Why turn around and sell it?

JP: The company itself is four years-old and we’ve had product available in market for one year. We’ve been venture funded to date and had the option to continue raising growth capital or merge with Middleby Corporation. Brava’s mission has always been to enable everyone to cook delicious, healthy home-cooked food with minimal time and effort, and we believe the fastest way to achieve this bold goal is through a strategic partnership with someone who can help make that happen.

TC: How did Brava and Middleby come together? Who brokered the first conversation? Was Brava talking with anyone else?

JP: We’ve been in talks with many people about financing, and a select group of strategics about a deeper partnership to achieve our objective. We had the assistance of City Capital in the process, and they made the introduction to Middleby in Chicago.

TC: How much is Middleby paying for the company? Also, is this an all-cash deal?

JP: While not disclosing the total amount, the consideration includes a mix of cash and stock

TC: So what’s next? Will Middleby retain the Brava name or will this be phased out over time?

JP: Brava as it’s known today will not only continue but see accelerated growth and expansion. We will continue to sell the product and support our customers under the Brava brand while further innovating new products and services for our customers.

TF: The Brava name will remain. The product and technology will enhance our existing residential and commercial kitchen appliance portfolio. In Middleby Residential, we manufacture and sell Viking Range and other well-known consumer brands.

TC:  How many people does Brava currently employ and how many if any are going to Middleby?

JP: Brava employs 38 people and all will be going to Middleby. I will remain as the CEO of Brava and will also work with other Middleby divisional leaders to leverage Brava’s light cooking platform and services for their existing brands. We’re excited by this because we currently have many ideas and plans for leveraging the Brava technology across new form factors, business segments (residential and commercial) and geographies. This all becomes more feasible with Middleby.

TC: We last talked before the Brava oven was out in the world. How many units did you wind up selling? 

JP: We’re closing in on 5,000 customers and expect to have a big holiday.

TC: What were some of the lessons learned with this experience?

JP: People love it. You can see this every day throughout our online communities. It’s not just about the quality of food and the ease in creating it . . . we hear comments all the time about how spouses who hardly ever cooked now do, how kids who never liked vegetables now ask for more . . .

In terms of what people want that doesn’t currently exist, [I’d say] more recipes and programs (we have thousands, but there are so many more we can do) and more flexibility; we can uniquely cook multiple ingredients simultaneously to perfection with our light-cooking technology and this enables lots of fun combinations [but] our customers would like even more flexibility in mixing and matching ingredients.

TC: Any business lessons?

JP: In terms of business lessons, it’s challenging to explain Brava’s full value proposition in a quick ad on social media. We have revolutionary technology that enables a new way of cooking that’s better, easier, faster — and that sounds almost too good to be true.

TC: Do you think the market for smart cooking appliance is big enough at this point? What do you think are the remaining hurdles and how do consumers get past them?

JP: The “smart cooking appliance” market is in its infancy. There are still very few pioneers in the space and household penetration is negligible. But this is all about to change. Once people know someone who can personally attest to the benefits, I fundamentally believe the adoption curve will bend exponentially.  People spend a lot of money on household appliances…once they can be “smart” and “chef powered” and deliver well against that promise, why would most people not want a “smart” one versus a “non-smart” one?

TF: We see this market growing significantly with the next generation [of home cooks] who currently rely on and demand a digital experience.

India’s Swiggy bets big on cloud kitchens

Can cloud kitchens take off in India? Swiggy, one of the country’s largest food delivery startups, is betting on it. The Prosus Ventures-backed startup said on Wednesday it has established 1,000 cloud kitchens for its restaurant partners in the country — more than any of its local rivals.

The Bangalore-headquartered firm said it has invested in over a million square feet of real estate space across 14 cities in the country over the last two years to help restaurant partners of all sizes expand to more locations both within their city and across new cities through cloud kitchens.

Swiggy said it has already invested about $24.5 million in its cloud kitchens business that it calls Swiggy Access, and plans to pump another $10.5 million into it by March next year.

Compared to developed nations like Japan and the U.S., India remains a very underpenetrated market for restaurants. “Even in dense areas, you know you need more restaurants,” said Larry Illg, chief executive of Prosus Ventures, in an interview with TechCrunch.

“That’s the value of creating kitchens for delivery platforms. We have the visibility of all the market dynamics. We can look at a location, comb through the data and know what kind of restaurants and food supplies would work there. Over time, you come to realize the neighborhood and their collective behaviour,” he said.

That’s where cloud kitchens could help. For restaurateurs, cloud kitchens reduce the risk when they look for expansion. “You have figured out the menu, and you know the operations. But you still have to take a big real estate risk when picking the location. Kitchens allow them to de-risk all these factors,” said Illg.

Early signs show that the concept of cloud kitchens is working for Swiggy Access partners. The company said one in three partners has been able to expand to a second kitchen within 90 days of signing up. Many restaurants from smaller cities have also expanded into big cities, the startup said.

Raymond Andrews, founder and chief executive of Biryani Blues, said in a statement that Swiggy Access has enabled the eatery to “expand quickly into newer territories not just in Delhi-NCR but also to Chandigarh. In the six years of our existence, I have found Access to be the easiest way to expand my brand. It’s a game-changer for the industry.”

Swiggy believes that India could emerge as the second-highest number of cloud kitchens after China in the coming years, said Vishal Bhatia, CEO of New Supply business at the firm. A year ago, the company had just 200 cloud kitchen partners.

“The milestone of Swiggy successfully creating over 1000 partner kitchens shows the faith the restaurant partners have in the concept and bolsters our pioneering efforts in enabling more success stories in the restaurant ecosystem,” he said.

Swiggy is also betting that cloud kitchens will help it speed up the delivery time. Swiggy co-founder and chief executive Sriharsha Majety said last month that the company is quickly scaling up “pods” that house cloud kitchens for restaurants in a way that they are “within a 10-minute reach of 99% of their consumers.”

Swiggy added that it is on track to create 15,000 new direct or indirect jobs in the restaurant industry through its Access program by next six months.

The announcement today comes weeks after news broke that Travis Kalanick, founder and former chief executive of Uber, is buying up cheap properties in India and some other markets to scale his cloud kitchens venture.

Indian newspaper Economic Times reported earlier this month that Ashish Saxena, former India head of TexMex Cuisine, franchisee for American casual dining restaurant chain Chili’s Grill & Bar in the country, is working with Kalanick on CloudKitchens, the new venture.

Food delivery firm FoodPanda, owned by ride-hailing giant Ola, earlier this year also pivoted to cloud kitchens. Swiggy claims it leads the cloud kitchens market in the country.

It will soon have another rival to compete with. American e-commerce giant Amazon plans to soon enter the food delivery business in the country.

In the ghost kitchen race, GV-backed Kitchen United aims to kill with kindness; here’s its playbook

Cloud kitchens, ghost kitchens, dark kitchens. No doubt by now you know a little about these businesses that are moving into underused or more affordable properties that can be turned into shared workspaces for the purposes of cooking up meals exclusively for delivery.

You probably also know that former Uber CEO Travis Kalanick has been at the forefront of the trend for more than a year, growing his CloudKitchens business as fast as he can, fueled in part by $400 million that he quietly raised from the sovereign wealth fund of Saudi Arabia earlier this year. Sometimes these are in the U.S., in so-called opportunity zones or lower-income areas that, under the Trump Administration, are enabling businesses to set up shop and avoid federal taxes in exchange. Kalanick is also reportedly eyeing big moves into both India and China.

CloudKitchens has competition, though. In fact, among a growing number of rivals, its fiercest competitor is Kitchen United, a Pasadena, Ca.-based outfit that has raised roughly $56 million to date from investors including GV, Fidelity, and the real estate operating companies Divco West and RXR Realty, among others — and which has turned down hundreds of millions of dollars more for the time being.

Does its founder, a tech veteran turned restaurateur Jim Collins, not understand the opportunity before him? It was one question among many that Collins answered last week at a StrictlyVC event in San Francisco where he dazzled the crowd with his comic timing — and his tactics. The interview — conducted by former TechCrunch editor and now CNBC reporter Lora Kolodny — also provided one of the best overviews to date of what this fast-ballooning industry is really about.

If you’re interested in the future of how food is made and delivered — and who could win and lose in the process — this is an interview you should read to the end.

On Collins’s background:

“I did tech companies for a bunch of years and sold the last one off about 10 years ago, and i said i never want to work with venture capital people again. [Laughs.] That’s sort of true but not completely. Honestly, I was burned out, it was a grind.

[One day] there was a restaurant up the street for sale. I walked up the street and bought the restaurant and then came home and told my wife, ‘I bought the restaurant.’ And so we had a conversation that [that decision] might entail a lifestyle change where I was going to be gone every night, and I was at the restaurant every night for about a year and a half getting it going, but I absolutely fell in love with the restaurant business.

On how he came to run Kitchen United (as well as run his restaurant, which is still a going concern):

[Our restaurant] is in Montrose outside of Los Angeles, in a sleepy community that most people in Los Angeles have never heard of, and about a year-and-a-half ago, we started getting people at the door, saying, ‘Yes, I’m from Postmates’ or ‘DoorDash’ or ‘UberEats’ and ‘I’m here to place an order.’  Because we weren’t signed up on any services, I was like: What is that? I was so far outside of my past world that I didn’t even know what it was. But all of a sudden, it was a thing and [it was growing], and one day, a headhunter who I knew well called me up and said, ‘Hey, I want you to take a look at food thing.’ So he sent me a job description (that was honestly terrible) for the CEO role at Kitchen United, so I went and met the founders — the two folks who were with the company at the time — and I kind of fell in love with them and felt like it was a big idea that we could go after.

What they pitched him on, and why he didn’t think it would work:

The original business plan was,  ‘Robots and autonomous cars are going to change the food business, so we need to be ready for that, so let’s build kitchens!’ And I said, ‘I think that’s actually true . . . in 10 years. The problem that the restaurant industry is experiencing because of the explosion of the shift in consumer demand and consumption isn’t a robots-and-autonomous-cars problem. It’s a proximity problem, and proximity is a problem we can solve tomorrow while we’re waiting.

What Kitchen United is building exactly:

We build kitchen centers. Basically you go into a space that’s $25 per square foot that no one has rented in 20 years, so we’ll take that space and put a bunch of kitchens in it. We also install a lot of technology — IoT, conveyer belts, all kinds of display information; we use machine learning to understand fire times — a whole series of things that go into deploying a kitchen center. Then we build a pick-up center in the front of the space that’s kind of the retail interface where drivers from Ubers, Postmates, DoorDash, Cavier, GrubHub (and seven other services can pick up the food) and [consumers can also grab pick-up].

Jim CollinsThere’s a thing called shared kitchens, which means that I’m going to go and cook in a space this morning, and when I’m done, somebody else is going to walk in this afternoon and cook in that same space. That’s not our business. Ours is effectively creating four-wall spaces for known restaurants to operate inside of our facilities for the purpose of extending their reach to meet new markets for delivery and consumer pick-up.

On whether Kitchen United is raising more money soon:

I don’t think so. We closed our Series B about six weeks ago.

It’s weird to be an entrepreneur in this world. There are two different operating methods that you’re encouraged to pursue if you’re going after a hot space. You’re either encouraged to be the biggest and fastest and to take as much money as you possibly can so you can be the biggest fastest, right? Or you’re encouraged to work hard and build a great business and then once you’ve built a great business, go out and get lots of money so you can build it.

Honestly, I felt like this business was so complex, that we had to learn about elementary stuff, like, where do we build these? Where’s the right place to put ’em? When we first started, we had meetings with big investment firms that were saying, ‘We’ll put $250 million against a $750 million valuation right now.’ That was the first conversation, when it was really like, we’ll put $8 in against whatever [laughs]. But when we were having that conversation, I’m flying home, thinking, $250 million? How would I deploy that? And they’re saying, ‘Well, you just go out and buy a bunch of warehouses in opportunity zones, and put kitchens in them, and it’ll be a great business! It’ll be awesome and you’ll own the market!”

Except warehouses in opportunity zones are too far away from consumers for food to get there fast enough for consumers to want to order from those restaurants. So I would have deployed $150 million in venture capital on brick walls and dry wall and stoves and vents and plumbing — like, ugly stuff. And once that stuff is deployed, it isn’t like it’s so easy to pick it up and move it someplace else.

How Kitchen United competes, if not in a land grab: 

Most conservative projections for this space over the course of the next four years are that we’re going to go from somewhere around $30 billion today to around $230 billion, so people come along and people say, ‘This guy is in this business and he’s got all this money’ or ‘This company has raised this much to put to work; does that make you nervous?’ And the answer is, if we go out and build 3,000 of these things, we build like the fourth-largest restaurant chain in the U.S., we’ve only addressed about 40 percent of the total market. So when I look at it from a pure antiseptic, practical perspective, the fact is we need other people in the space, helping us solve the problem. And honestly, to the extent that other people are learning from us and getting better, and we’re learning from others and getting better, I think the competition isn’t a bad thing, I think it’s a good thing. (Here, Kolodny teased him for his “very diplomatic answer.”)

On what makes Kitchen United distinct from its long and growing list of rivals:

First, we decided the U.S. is a giant market, so we decided to focus here on the U.S., despite requests probably once a week from somebody saying, ‘Come to Saudi Arabia’ because it turns out it’s hard to build kitchens anywhere in the world, and we’re pretty good at building them.

The other thing we did . . .[is decide to play nice with Kitchen United’s two biggest customers  — major food chains and delivery services]. I don’t want to boil the ocean. I don’t want to be a restaurant; I don’t want to cook food for consumers. There are 800,000 restaurants in the U.S., so let’s let them cook food and let’s come alongside them and help them expand what they are doing into new areas. . . . Our whole job is to expand the inventory for the [delivery] marketplace, expand the addressable market for the restaurant, and expand options for consumers so that we have a great business for all the various markets that we’re serving.

On the criteria to become part of Kitchen United:

We don’t work with startup restaurants. We don’t work with people that only have one location. When we started, we didn’t know what would work so we brought in all kinds of restaurants and ended up having to kick most of them out because either they didn’t know how to be a restaurant or they didn’t know how to be a multi-location restaurant. This is true of the ghost kitchen community as a whole: if you’re a restaurant and you don’t already have a consumer connection and an audience and a following and you try to open in a space with no consumer interface, no storefront, you have to climb a giant mountain.

There are some virtual restaurant brands. We have one in our location in Chicago. They were people who had operated multi-location restaurants and had a tremendous amount of internet marketing savvy and skill, so we decided to let them operate and they’re actually doing pretty well, so that’s an interesting new wrinkle.

On whether anything disqualifies a business from using Kitchen United as a platform:

Yes, a lot of large chains that will say we want to be in Kitchen United. We were at a big real estate development conference in Las Vegas and there were probably 20 chains that talked with us about being in KU and probably 18 of them would not qualify.

You’d like to think [that’s on a nutritional basis]. One thing we’ve learned isn’t to filter what the American consumer wants; our job is just to provide a path for them to get what they want.

The actual challenge is giant chains that have very little ability to create an online connection to their consumer. If they don’t have sophisticated online ordering interfaces, if they haven’t deployed the right technologies into their ERP and their ordering infrastructure and all the stuff that goes into the back end, then they aren’t going to be a good fit for KU because of the operational problems they have to overcome is just too great.

On how Kitchen United uses the data that’s running through it’s operations:

It’s a hot topic. We’re pretty careful. KU is a partner to our restaurants, and so we learn information through our own order channel. We don’t derive much information through the marketplace channels. There’s sort of a misnomer that when the marketplaces deliver orders . . . all we know is a consumer name, we don’t know an address or any of the other information. So you don’t get a lot of data like that.

Information we do get is stuff like how many chicken sandwiches a Chick-fil-A is selling or whatever. And you might think, ‘Oh cool, so you’ll just make a chicken sandwich [of your own] when Chick-fil-A closes down and you’ll sell it to the public.’ The restaurant world is very nervous about that; it’s a big topic in this space. If you go to restaurant conferences, there are a lot [accusations of], ‘They’re stealing my data.’ I’m the guy on stage saying, ‘It’s their data [the delivery marketplaces]. They attracted the consumer, they got the order from you. It’s their data. They aren’t stealing your data, it’s their data; you chose to allow them to sell your product on their network.’

But [also] it’s not as easy as that. You can’t just whip up a fried chicken sandwich and make consumers like it. The world is littered with even more failed restaurants than failed startups.

What happens to neighborhoods — and local restaurants — if Kitchen United succeeds:

The restaurant industry is huge — $800 billion in the U.S., $675 billion if you discount hospitals and stuff like that. [This take-out market] is somewhere around $33 billion this year. So we’re edging into it as a percentage, but if you look at dining room revenue year over year for the last 20 years in the U.S restaurant industry, it grows 1% per year, which is pretty much consistent with population growth. And the same is projected to be the case this year.

So restaurants aren’t dying because of marketplace delivery. Marketplace delivery is actually pulling business out of grocery stores. That’s why you see Kroger and Amazon and other grocery store chains plowing down rows of [goods] and installing warm counters with warm food and you’re seeing grocery chains focus on delivery.

It’s the wild west. It’s a crazy market and I absolutely, positively love it. It’s not a question of what gets me up in the morning. I never go to bed.

Prosus makes $6.3B hostile bid for Just Eat; Just Eat rejects deal in favor of Takeaway merger

As Amazon-backed Deliveroo expands into click-and-collect and procurement services to grow its footprint with restaurants in Europe, a food fight among three other takeout and delivery players continues apace in an ongoing consolidation march to compete better against the likes not just of Deliveroo but also Uber Eats and more.

Today, Prosus — the recently-listed arm of Naspers comprising its extensive online assets (including a significant stake in Tencent) — said that it would be willing to pay £4.9 billion ($6.3 billion) in cash for Just Eat, one of the big players in the food takeout and delivery market in Europe. The bid is a hostile one: Just Eat has been in the middle of working on a combination with Takeaway.com, another large competitor in the market; and today Just Eat wasted no time in asking its shareholders to reject the Prosus offer.

“The Board believes that Just Eat is a leading strategic asset in the food delivery sector and the Prosus Offer fails to appropriately reflect the quality of Just Eat and its attractive assets and prospects, the benefits of first mover advantage in a consolidating sector, and the significant future upside available to Just Eat shareholders through remaining invested in Just Eat and the Takeaway.com Combination,” it noted in a statement. “The Board of Just Eat believes that the Takeaway.com Combination is based on a compelling strategic rationale that will deliver a number of strategic benefits and greater value creation to Just Eat shareholders than the terms of the Prosus Offer. Accordingly, the Board of Just Eat continues to unanimously recommend the Takeaway.com Combination to Just Eat shareholders.”

Prosus’ offer, which works out to 710 pence per Just Eat Share, is 20% higher than Takeaway.com’s offer of 594 pence (which itself was at a premium to Just Eat’s share price).

The Takeaway offer has been months in the making and has had a number of twists and turns. The first announcement for a $10 billion merger was made in July, but in the interim Prosus made its first hostile offer, and so the deal switched to a takeover this month in hopes of securing shareholder agreement faster.

At stake for all players is the fact that the delivery business continues to be a fast-growing but very crowded field, with a number of players operating unprofitably and hoping for consolidation in order to improve their economies of scale and margins. If economies of scale and better margins is the rock, the competition is the hard place: all three have a strong and very highly capitalised set of a pair of competitors in the form of Uber Eats and Amazon-backed Deliveroo, with a number of smaller but also fast growing startups continuing to crowd the field.

Just Eat and Takeaway.com have already done some consolidating of other operations. The latter two have gobbled up different parts of DeliveryHero’s European business in recent times. Prosus, meanwhile, has a 22% stake in the remaining DeliveryHero business (outside of Europe), alongside stakes in India’s Swiggy and iFood in Latin America. This would mean that Prosus taking over Just Eat would be less about consolidation of European holdings, which could be one reason why Just Eat is less keen on the idea.

Takeaway.com has also issued a response to the news, noting that it’s the only one of the three that has working on building profitability into the business: it’s currently profitable in the Netherlands, its home market, and is on track to getting there in Germany (a track it believes it can continue with more scale).

“Given the circumstances, I can fully understand that the current cash values of both our and the competing offer aren’t particularly appealing to the Just Eat shareholders, and seem to be quite far removed from the fair value of Just Eat. We do however believe that the agreed merger ratio between Just Eat and Takeaway.com is appropriate,” noted Jitse Groen, CEO of Takeaway.com, in a statement. “Takeaway.com now operates in two out of the world’s four major profit pools. Including the UK, the Just Eat Takeaway.com combination will therefore operate in three out of the four major profit pools globally available. This in stark contrast with most other food delivery websites, which are loss-making, and in our opinion, will likely never become profitable.”

It seems that Naspers’ Prosus says that this is its last and final offer for Just Eat, but this is unlikely to be the final word on how food delivery and takeout will play out in Europe (or globally).

The market is still largely operating in the red globally — and even the most established players, like GrubHub, are not seeing much stability. And with about half a dozen giant players operating in different markets, and lots of capital riding on each of them, we’ll be seeing a number of deals and product expansions — for example the emergence of more “virtual” kitchens other added services such as restaurant procurement — before it’s all gravy for this industry.

Plant-based dairy replacements are coming to ice cream pints in San Francisco and New York

Plant-based replacements are so hot right now, they’re even hitting the coolest thing in food — ice cream.

The new plant-based dairy replacement maker, Eclipse Foods, has just signed a deal with hipster ice cream brands Humphry Slocombe and Oddfellows to put its dairy replacements into their mixes.

Unlike other plant-based products which provide an alternative to dairy without mimicking its texture and taste, the folks at Eclipse Foods say their product is indistinguishable from milk from animals — and made using allergen-free ingredients.

Starting on Saturday, store shelves in New York and San Francisco will be stocked with the OddFellows and Humphry Slocombe artisanal ice cream brands made from plants.

The company has raised $3.5 million from investors including Alexis Ohanian and his Initialized Capital investment firm, Gmail creator Paul Buchheit and the former chairman of Daiya Foods, Eric Patel.

“I’m excited to be investing in more plant-based foods,” said Ohanian, in a statement. “Aylon and Thomas were immediately impressive as accomplished experts in food science and the quality of the ice cream is already near indistinguishable from its dairy counterpart and it’s only going to get better. This is filling a need in the surging plant-based food space that is competitively priced, sustainably produced, and — most importantly –delicious.”

Compared to some of its competitors, the Eclipse Foods path to market is relatively straightforward — since it’s not using any genetically modified ingredients to make its dairy replacements. It’s more like the Beyond Meat than the Impossible Foods of the dairy industry.

“We’re not using any expensive biotech to get to where we’re going,” says Aylon Steinhart, the company’s chief executive. “We take plants and we use our world class expertise in functional plant proteins and how they work to blend plants together in a quite simple way.”

Founded by Steinhart a former expert at the Good Food Institute, a non-profit focused on plant-based food innovation, and Thomas Bowman, the former director of product development at JUST, Eclipse Foods launched from Y Combinator’s famed accelerator in March of this year.

The low-cost inputs that the company says it uses, including corn and cassava, means that it won’t require as much capital to scale up, says Steinhart.

For now, the company is pursuing the roadmap laid out by Pat Brown’s Impossible Foods and replicated by dozens of other startups going after plant-based or lab-grown replacements to traditional proteins. That means partnering with famous chefs and artisanal brands whose products sell at a higher price point than your McDonalds or Burger King soft serve ice cream cones (or Wendys ultra-delicious Frosty).

Instead of plain vanilla, Eclipse Foods plant-based liquid ice cream base will be showing up in flavors like OddFellows‘ Miso Cherry and Olive Oil Plum ice creams or Humphry Slocombe‘s spiced Mexican Hot Chocolate.

Ultimately, the company has plans to go down market and sell into the same kinds of stores that are offering Beyond Meat and Impossible Foods burgers and patties.

If every Burger King has an Impossible Whopper and every Carls Jr. has a Beyond Famous Star, then every restaurant should have a dairy-free ice cream offering,” says Bowman. “It’s got no allergens. No GMOs … no gums no gels and no stabilizers.”

Uber is entering the ads business

Uber will become an ad platform, selling space inside its Eats app to restaurants hoping to lure in more food delivery orders. A recent Uber job listing spotted by TechCrunch seeks an Uber Eats Ads Lead “to lead the team and efforts responsible for creating a new ads business that enables eaters to discover new foods and restaurants to grow their customer base.”

An Uber spokesperson confirmed the company would be entering the ads business, telling TechCrunch “We are exploring relevant ads in Eats.” Selling ads could help it improve margins on Eats, where it only takes 10.7% of gross bookings as adjusted net revenue since it pays out so much to restaurants and drivers.

The fresh opportunity in ads comes at a critical time when Uber is desperate to show its future potential in the face of a sagging share price that closed at $28.02 yesterday, down 40% from a high of $46.38 in June. Today, Uber’s post-IPO stock lock-up expires and early investors are able to sell their shares, putting newfound pressure on its stock.

TechCrunch was the first to discover a prototype of Eats ads in Decembe called Specials, where restaurants could get featured placement in the app in exchange for offering a discount. This demonstrated Uber’s ability to steer hungry users to order from particular restaurants.

I followed up with Uber’s senior director and head of Eats product Stephen Chau, who hinted at the company’s aspiration in the ads business. “There’s a bunch of different ways we can work with restaurants over time. If we have all the restaurants on the marketplace and we give them tools to help them grow, then this will be a very efficient marketplace. They’re going to be spending those ad dollars somewhere,” Chau told me. We’ve been checking on the company’s progress in ads ever since.

As we predicted, now instead of just a quid pro quo where Uber exchanges added visibility to restaurants willing to offer discounts that could keep users loyal to Uber Eats, it plans to formally sell ads.

“As this is a brand new space for Uber” the Toronto-based Eats Ads Lead “will be responsible for defining the vision for this new product area and determining where to start building.”

The job listing also notes whoever takes the role will “Help formulate our business, product and go-to-market strategy for ads” and “Creatively experiment and quickly iterate on early tests”. Signaling global ambitions for Eats ads, the Lead will “Customize and scale this offering across the world.”

The effort is separate from Uber’s own marketing efforts that see it spend over $1 billion per year to recruit riders, drivers, and Eats customers. Uber will start selling the ads, not just buying them.

The potential for Eats ads stems from Uber’s place as a destination for choosing what to eat, not just ordering it. Wherever there is discovery, there are opportunities for paid discovery. And as Uber focuses on cross-promoting Eats inside its main ride hailing app, it could suck in more users that are open to suggestions that restaurants pay to provide.

We don’t have details on exactly how Uber’s ads will look. However, you could imagine them appearing on the home page, the browse section, or even in search results for certain cuisines or restaurants. Restaurants hoping to boost orders could pay to appear to users who are hungry but don’t know what they want to eat, or to appear before competitors in the same food style.

Amazon successfully navigated a similar expansion from marketplace to ad platform. eMarketer expects Amazon’s US ads business will grow 33% this year to reach $9.85 billion, and claim 7.6% of the total US ad market which makes it the biggest search ad player behind Google.

Uber could use any revenue it can get. This quarter the company lost $1 billion, with $316 million of that loss coming from Eats. But Eats’ revenue grew 64% year-over-year, showing it’s increasingly popular, and could command enough user attention to make advertising lucrative.

Ads could also serve as a wedge for Uber to move deeper into business intelligence services for restaurants. It could apply its data on food delivery demand to help kitchens to optimize prices, allocate staff, and improve menus.

To save its share price, Uber’s best bet is to find new streams of cash it doesn’t have to share with drivers or restaurants. It may still be years until self-driving vehicles arrive to rescue Uber from its tremendous costs.

Amazon axes $14.99 Amazon Fresh fee, making grocery delivery free for Prime members to boost use

Amazon is turning up the heat once again in the world of groceries, and specifically grocery delivery, to make its service more enticing in face of competition from Walmart, as well as a host of delivery companies like Postmates. Today, the company announced that it would make Amazon Fresh — the fresh food delivery service it now offers in some 2,000 cities in the US and elsewhere — free to use for Prime members, removing the $14.99/month fee that it was charging for the service up to now.

Alongside free delivery, Amazon is giving users one and two-hour delivery options for quicker turnarounds, and it’s making users’ local Whole Foods inventory available online and through the Amazon app.

Prime members who were already using Amazon’s grocery delivery services — either for Amazon’s own-branded service or to get Amazon-owned Whole Foods shopping delivered — will continue to get these, now free. Prime members who might be interested in trying this out for the first time will have to sign up here and wait for an invite. (“Given the rapid growth of grocery delivery we expect this will be a popular benefit,” Amazon explained about the waitlist.)

“Prime members love the convenience of free grocery delivery on Amazon, which is why we’ve made Amazon Fresh a free benefit of Prime, saving customers $14.99 per month,” said Stephenie Landry, VP of Grocery Delivery, in a statement. “Grocery delivery is one of the fastest growing businesses at Amazon, and we think this will be one of the most-loved Prime benefits.”

Making Amazon Fresh free is the latest price tinkering (and reduction) that Amazon has made to drive more usage of the grocery service, while at the same time expanding the sweeteners it gives to consumers to sign up to Prime. The $14.99/month fee was introduced back in 2016, itself a reduction on a $299/year fee that Amazon previously charged Amazon Fresh customers. Before that, Amazon charged a $99/year subscription plus separate delivery fees to use the service.

It’s not clear how many customers are already using Amazon Fresh, or whether the service is profitable not for the company at this point. Notably, despite the boost of Amazon owning the Whole Foods chain of supermarkets, analysts earlier this year estimated that while Amazon was still seeing its grocery service growing, that growth was slowing. (To add to that, we’ve seen some consolidations that point to Amazon looking for ways to simplify — and reduce the cost — of its grocery shopping offering.)

Despite all this, in the US, about a year ago it was estimated in a separate report that Amazon accounted for about one-third of all grocery delivery in the US.

Grocery delivery is a tricky business, much more perishable than delivering a book or a piece of clothing or a piece of consumer electronics, but it represents, if done right, a frequently recurring line of revenue. Too add to that, Amazon has made fast and free delivery one of the major cornerstones of how it grows its business and attracts customers away from using other online shopping options, or visiting actual brick-and-mortar stores.

In other words, regardless of whether it is profitable or not, it makes sense that Amazon would invest in ways of trying to boost its grocery delivery service, making it free being perhaps the biggest boost yet (next stop: cash back when you use it?). It fits with the company’s more general economies-of scale approach: bring in more users buying more groceries, and make up the margins in the latter to offset potential losses in the former.

But the move to make deliveries “free” — free, that is, for those who are already paying $12.99/month or $119/year for Amazon Prime — is a classic Amazon move not just to boost its own usage numbers of the service.

The company is facing persistent competition from a number of other companies also providing online grocery shopping and delivery. In the UK, just about every large grocery chain offers this service directly (or through another non-Amazon partner). And in the US, Walmart announced just last month that it would be expanding its $98/year Delivery Unlimited service, which up until today would have been a cheaper deal than Amazon’s. Both Postmates and Doordash are among the delivery hopefuls who also have ambitions to make a dent in this area.