FoodPanda acquisitions are part of the larger Rocket Internet narrative

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In a recent strategic move that secured its market leadership across multiple markets in the Asia-Pacific (APAC), FoodPanda – a crown jewel in Rocket Internet’s APAC portfolio – acquired key competitors across markets in South Asia and Southeast Asia, consolidating its leadership.

Active in 39 countries globally, Foodpanda acquired competitors in markets, ranging from the colossal South Asian markets of India and Pakistan, with a combined population of 1.4 billion people, to the smaller middle-income and developed ASEAN markets of Malaysia Singapore, Philippines, Pakistan, Hong Kong and Thailand.

Foodpanda fully acquired Food Runner in Malaysia, the Philippines and Singapore. The acquisition, which has a franchise relationship with partners across major Indonesian cities, will reap dividends for Foodpanda, especially if it intends to directly enter the Indonesian market.

Singapore-based Food Runner, founded in 2012 with investment from Berlin-based Rebate Networks GmbH and Singapore-based Digital Media Partners (DMP), operates the following brands; Room Service in Malaysia and Singapore and City Delivery in the Philippines. The food ordering business unit was spun out to Singaporean e-commerce operator DealGuru, which was acquired by Foodpanda as well.

Due to these acquisitions, financed by a series C funding, in the range of $60 million for Q3 2014, Foodpanda is now a clear market leader across four key South East Asian markets, as well as in Indian and Pakistan. In fact, Rocket clones were able to generate more funding than their US counterparts by a significant margin.

In the major Southeast Asia markets alone, Foodpanda now caters to customers with over 1200 partner restaurants across all the major cities of Malaysia, Singapore and Philippines. In the Thai market, Foodpanda has partnered with Food By Phone, a rapidly growing segment of the online marketplace for food deliveries.

With a market presence since 1998, Food by Phone and its partner restaurants will also extend their online reach through the Foodpanda Thailand website and mobile application, further increasing the online presence of FoodPanda.

Also Read: After early IPO closing, Rocket Internet surges

Rocket Internet Activities

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Image Credit: CB Insights

 

The funding to Rocket Internet companies has increased significantly from July 2012 through to August 2014, with the aggregate funding of all Rocket Internet startups increasing by up to $2.2 billion during this period. In fact, the funding that Rocket Internet clones receive exceeds that of their competitors.

So how do these acquisitions fit into the larger narrative of Rocket Internet? Using data from CB Insights, Rocket Internet’s business model is based around seeking proven business models and transferring them over to untapped markets, with the intention of scaling them into market-leading online companies on a regional basis.

Their focus? Developing international markets outside the US and China.

Especially in focus are the emerging market regions like Southeast Asia, where they’re slowly emerging as a force to be reckoned with.

In other terms, Rocket Internet AG, a publicly-listed firm, has $9.2 billion in market capitalisation as of February 2015 and is practicing concept arbitrage.They take business models and concepts validated in the US and adapt them to the intricacies and sensibilities of local markets. Rocket Internet is not innovative by any traditional manner, but they practice a form of refinement – much like the Japanese. They see a concept, replicate it, adapt and and refine it.

Nathan Benaich, an investor at London-base Playfair Capital stated: “Rocket is known for its ruthless focus on executing and scaling e-commerce businesses. Many belittle their process from a qualitative standpoint, claiming that it lacks inspiration because it obviates the famed entrepreneur’s ideation process and that it is implemented without concern for competitive ethics. My view is that we should instead focus on what the Samwer brothers [Rocket Internet founders] set out to achieve, their results, and what we can learn from their experiments.”

Rocket Internet has implemented a carefully orchestrated strategy maintaining its role as a key stakeholder in a portfolio of companies maintaining strong positions in key growth markets. They ruthlessly clone successful North American business models, before adapting and executing them to local markets in various economies like Turkey, India, South Africa, Southeast Asia and Latin America.

In light of the recent acquisitions across India and ASEAN markets, Ralf Wenzel, co-founder and CEO of the Foodpanda Group, stated: “With the recent acquisitions Foodpanda has become the market leader across South East Asia. The combined expertise and experience of several great local companies allow us to significantly improve our offering and service to our customers.”

This move to cements its market leadership in Southeast Asia follows a series of acquisitions in Europe. With this, the Foodpanda group now possesses market leadership in Southeast Asia, as well as in other emerging economies like India, Russia, Brazil and Mexico.

Martin Szelag, the partner of Polish-based  Innovation Nest, said, “This ‘execution at scale’ model is probably the most important lesson Americans can learn from the Samwer Brothers. They have created a completely new business model around the concept of building global tech companies.”

It’s accepted concept arbitrage is impractical, due to the ease of going global with a digital product. However, the business models required when operating in new growth markets (BRICS, etc) are not simple clones of US business models, due to the culture and style of business being different.

Cultural standardisation does not work as well as across different markets, due to the different competencies and knowledge in cultural literacy and regulations, as Uber has experienced with its operations in the Asia-Pacific. Terence Lee, the managing editor of Tech in Asia, a tech publication covering tech startup developments across the Asia-Pacific, noted that US startups were often unable to adapt to the political environment of Asian markets.

Rocket Internet startups are renowned for the excellence of their execution, which is a repeatable model, entering markets that a cursory analysis often writes off. With SpotCap, a Spain-based venture, the usual narrative of “Southern Eurozone basket case” was disregarded.

The Rocket Internet narrative? An economy recovering from deep recession and positioned to leverage Spanish-speaking markets in Latin America.

In essence, Rocket Internet sees opportunities where others may see problems.

The slew of acquisitions has also forced Rocket to go back to investors to raise fresh capital. Last week, the company raised $670 million in an equity fundraising round. Rocket had sold 12 million ordinary bearer shares, equivalent to about 7.8 per cent of the existing share capital, for 49 Euros apiece, exclusively to institutional investors, in a private placement, by way of an accelerated bookbuilding process.

For Rocket, the fresh fundraising round comes within months of the company raising 1.4 billion Euros ($1.6 billion) in its October IPO. Since then, it had spent about a 1 billion Euro acquiring a slew of online businesses, especially in the food takeaway segment.

Also Read: Rocket, PLDT form internet JV firm

 

FoodPanda and the Rocket Internet Strategy

 

Foodpanda’s acquisitions are part of the larger Rocket Internet narrative. There’s a cohesive and comprehensive strategy in place, and that’s being witnessed in the pattern of acquisitions and mergers being seen. Rocket Internet firms aim for market leadership and consolidation of their industry position across different markets worldwide.

In many ways, its an extension of the Mittelstand philosophy practiced by small and medium-sized enterprises (SMEs) across Germany, Austria and Switzerland. This model is renowned for “…highly focused, achieving unprecedented efficiencies by designing a business model with a razor-thin focus and learning to do the one thing really well; then to “compensate for their razor-thin focus . . . they diversify internationally and enjoy great economies of scale” according to Karan Girotra and Serguei Netessine, both INSEAD professors.

Foodpanda’s acquisitions reflect a form of business model innovation often found in Rocket Internet’s ventures. These are relentless focus on achieving efficiencies and making businesses cost-competitive in their host markets, maintaining simple product lines that lead to lean management structures and international diversification across multiple markets.

The result? A strong competitive advantage.

Conventional wisdom dictates you cannot globalise venture capital businesses. But Rocket Internet has proven otherwise. It combines the aspects of a venture capital firm and business development companies. Essentially the hybrids of traditional investment firms and an operating company, it represents a transparent portfolio of loans.

This is similar to private equity or venture capital that is publicly traded, without restriction or back-end fees.The fact that Rocket Internet is public is crucial, enabling people to invest in startups with diversification. The public markets were the original crowd-funding platform, and Rocket Internet AG, with its public listing, is a return to roots with its business model.

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Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.