Summary:

Online delivery service Just-Eat raised $64 million, and has its sights set on expansion. Surely it would target America, the home of fast food, right? Wrong. CEO Klaus Nyengaard tells us why he doesn’t want to roll out in the U.S any time soon.

Image 1 for post A hamburger today( 2005-05-19 15:49:42)

It’s been a big week for Klaus Nyengaard. Just-Eat, the online food delivery company he has run for the past four years, has just raised a bumper $64 million funding round to help it achieve global grub domination.

But though the company obviously has a strong appetite for expansion — it operates an online delivery portal covering some 25,000 small restaurants in 13 countries — there’s one place it doesn’t plan on going any time soon: America.

What? Surely avoiding fast food’s promised land is a crazy move?

“The U.S. of course is the biggest market in the world,” Nyengaard told me at the company’s London headquarters. “But it’s not so much bigger than U.K., as people might believe.”

“There are five times as many people in the U.S. than the U.K. and they have even more takeaway — however, the pick-up part of takeaway is bigger in the U.S. than over here, where it’s a lot of delivery. So the delivery business is maybe only three times bigger than the U.K.”

An opportunity three times the size of your largest market is not exactly shabby, though — so isn’t the company avoiding the chance of a massive win? No, argues Nyengaard: Just-Eat can actually be more successful if it avoids the complex, bitty and highly competitive American market in favor of more profitable regions like Europe, Canada and Brazil.

“Yes, three times the size of the U.K. is massive — and the U.K. itself is half the European market,” he says. “However, in the U.S. you have a lot of very, very big chains that are very professional and invest a lot of money in marketing and in technology. Plus the U.S. is so big that geographically it’s going to be hard to grab the whole market.”

“There are already two fairly decent sized businesses over there in Grubhub and Seamless, and some town-based ones — but in total, I don’t think a very successful U.S. company would be able to reach a profitability that is higher than our U.K. business.”

So it’s about spending that money smartly, then — on acquisitions, technology and sitting on some cash to keep the balance sheet strong. But never say never.

“Of course in the long term, we want to go there — it’s massive,” he adds. “But our strategy has been to build up clear, leading positions in the most interesting markets outside the U.S. and China.”

Hunger gains

The company seems to be doing what it wants in that regard. Its system of fast food partnerships has caught on in a lot of places, with local restaurants teaming up to be listed in the site’s pages — which means they’re effectively outsourcing their online ordering — in exchange for a commission of around 11 percent on each sale.

The deal seems to be attractive enough that Just-Eat is ahead of the competition in nearly every country it operates, thanks (says Nyengaard) to strong local sales forces, and a policy of empowering local teams to do their best.

And there’s one other lead the company has over some rivals: it uses 21st century technology instead of fax machines.

I’m not kidding. Many of Just-Eat’s rivals still rely on customers submitting online orders which are then faxed to restaurants. Unlike them, Just-Eat installs connected terminals in each business, which immediately flag up orders that have been submitted, allowing the cooks to accept or reject them at the press of a button (rejections max out at around 2 percent, apparently, though sometimes the occasional serial rejecter gets booted out of the system entirely).

This makes the system more efficient, and gives Just-Eat partners a better response rate than competitors.

There’s funding and then there’s funding

For all its success over the past few years, however, there are still some open questions about the business. How does it compete against those chains, for example? What happens when growth starts to level off?

And what happened to the $48 million funding the company raised just over a year ago?

Nyengaard says the answer to the growth and competition questions is that marketing spend has to increase. And on the funding question, he says the business has burned through nearly all of it through expansion and acquisition in just 12 months — but then says that it isn’t precisely what it seems, because in fact a significant chunk of that money actually went into buying out some existing shareholders.

In the end, he says, only around half the money actually went into the company’s coffers, and it has gone into purchasing operators in France, the U.K., Canada and elsewhere.

“It was only really £15 million of fresh capital last year,” he says. “This time it’s about 90 percent fresh capital, which is much better.”

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