German start-ups seek e-commerce opening as U.S. ‘leaves rest of world open’

German firms are racing each other around the world to tap in to growing e-commerce markets.

Rocket Internet, Team Europe and the Otto Group are duking it out in South-East Asia, Brazil, Russia and elsewhere. But moves into the U.S. market have been tentative at best.

Berlin-based Delivery Hero is an online food-ordering service that came out of Team Europe’s incubator. In less than two years, it’s rolled out to almost a dozen countries, from Australia to Mexico. Earlier this year it was talking 84 percent growth in one quarter.

We talked with Delivery Hero CEO Fabian Siegel about internationalization…

Meyer: Last time we checked, Delivery Hero was growing pretty fast…

Siegel: “It’s built up much faster than any of us thought. We started the business with a focus on building a German market leader, and it really worked, so we doubled down on it. People have been doing [online food-ordering] for 12 years and it was too early, or too complicated, or the market was too small. But it’s a big market and it’s happening today. In the markets where we operate, 80 percent of people order food over the phone – the channel switch is just starting now. In three to five years, it will all be online.”

Are there cultural differences between markets that you have to take into account?

“We do see cultural differences in terms of where people order food and what they order. In general, people who have an elaborate food culture don’t tend to order so much food, such as Italy and France. It’s not whether online ordering is different, it’s whether food ordering is different. The U.S. is the country that has the biggest proportion of people ordering online.”

So are you planning to go into the U.S. market?

“It’s a very bold play. You have three players there – LivingSocial, Seamless and GrubHub – and right now we see we can deploy our capital more efficiently elsewhere. We see ourselves competing with Just-Eat – we only overlap with them in the UK and Switzerland. In the UK, we’re growing rapidly. We bought when it had 3,000 restaurants. Now they have 7,000. What took them three years to build took us six months to double.”

What’s the key to getting restaurants on board more quickly than your rivals can?

“We’re doing it over the phone. You can call more people than try to meet them.”

Do companies such as yours try to get restaurants into exclusive arrangements?

“People sometimes try it, but we don’t think it’s OK for the restaurant. Restaurants hate it; they feel like you’re trying to force them into something.

“It’s a land grab. It’s about being faster and able to raise a lot of capital quickly. In each market, we’re either number one or two – in Sweden, Finland, Austria and Poland we’re dominant, and in other markets like Germany and the UK we’re strong number two. Other markets are too early.”

I’m getting a strong sense these days that, particularly in e-commerce, certain German companies are becoming very expansionist. Rocket Internet, for sure; Team Europe; Delivery Hero… is that the case?

“We’re in the second or third generation of internet startups here. The Samwers started Alando first only in Germany. You’d always start with one country, and when you’re done there, you want new challenges. The new startups are immediately global.

“Berlin has built an infrastructure of massive customisation. It’s not just Rocket etc – and Airbnb use Berlin as their hub for a global rollout. There’s a uniqueness the city has to offer in terms of talent and close communication, and you have the experience. People here have already launched in South-East Asia; they can do it with another business model.

“You don’t see another hub in the world where this is being done repeatedly. It’s great for us to hire people from Rocket or Zalando who’ve done it before. You don’t see that in any other European capital, or in the U.S. – the U.S. is a huge market, so why take the risk [of international expansion]?”

So, in e-commerce, is it shaping up to be about the U.S. market and the non-U.S. market, with companies such as yours opting for the latter?

“We have opportunities in the U.S., but there’s already three big players. There are so many markets where the only competitors are local players with no access to capital.

“For U.S. companies, why bother getting distracted by something outside the U.S.? They leave the rest of the world open, and naturally companies take it. Most of them happen to be Berlin-based companies. This is primarily for e-commerce companies – I mean, look at SoundCloud.”

You returned a couple of years ago from an eight-year stint in the U.S. How does the difference strike you?

“When I left in 2002, there was no Berlin scene. There were more startups in other cities in Germany, and there was no European hub for startups. Eight years later, Berlin is the hub for Germany and on a European scale it’s one of the – if not the – places people start up. Again, look at SoundCloud. It’s the combination of cheap cost of living, and a city that feels like Brooklyn a big – it’s not so dense.

“You can attract talent from around the world that come here with no big risk. It’s very well-connected from a travel perspective – all these budget airlines really help the European startup scene. You have capital based in London, talent from Eastern Europe, and at some point you get this critical mass of people working with the industry. For that I’d give Rocket a lot of credit – these guys created the talent pool. 15,000 employees – they trained these people how to build web companies. It wasn’t there when I left.”

That said, is there a risk of a Berlin hype bubble?

“I don’t see a bubble here. Access to capital is still very restricted here, which reduces the risk of a bubble. You don’t have a real angel network. The problem here is that people can come up with the first €50k, then there’s this funding gap. I don’t know when we might get there, because we don’t have the exits here.

“There’s no true venture capital in Europe – VC involves taking risks. In the U.S., VC firms are investing into tech teams – here they’re only investing in e-commerce because they think they understand it.

“Incubators fill the gap here. In the U.S. they don’t need that, because they have enough capital. That’s the biggest difference I’ve seen – here you have institutionalised entrepreneurship, incubators, whereas in the U.S. you just have entrepreneurship. Delivery Hero was built out of Team Europe. It was a luxury, in that you can just focus on building the business.”