Talabat-instashop deal may spur more industry mergers

Delivery service providers look to strengthen market positions in an increasingly competitive landscape

Talabat's acquisition of instashop could put pressure on competitors to pursue similar strategies, say analysts. Victor Besa / The National

Talabat's acquisition of Dubai-based platform instashop last week could be a catalyst for more consolidation in the food and grocery delivery industry, as more and more platforms turn into super apps, industry analysts say.

However, potential challenges on competition and job security are also likely in the industry, in addition to the effects consolidation would have on fair consumer pricing.

UAE-based talabat bought instashop from German parent company Delivery Hero for $32 million, boosting its grocery and retail portfolio in the Emirates and Egypt, and bringing its pro forma grocery and retail gross market value for last year to more than $2.5 billion.

That could bring more momentum to the consolidation trend, with companies seeking economies of scale, expanding their customer base and enhancing operational efficiency in an increasingly competitive market, said Olivier Tricou, managing director of Dubai-based Alpen Capital.

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"More mergers and acquisitions are likely to happen, as companies seek to strengthen their market positions and diversify their services," he told The National.

Talabat's acquisition of instashop looks set to "accelerate market consolidation in the Mena delivery sector", agreed Salem Al Remeithi, chief executive of SHR Capital.

"This strategic move creates a more powerful integrated platform with expanded service offerings, putting pressure on competitors to pursue similar strategies," he told The National. "Smaller players may struggle to compete independently against such comprehensive delivery ecosystems, driving them toward mergers or acquisitions to remain viable ... further concentrating market power among fewer, larger entities."

While talabat and instashop are eventually subsidiaries of the same holding company, Delivery Hero, analysts touted the deal as a "significant" one, given the potential to serve more customers at scale in a region increasingly dependent on technology platforms.

The deal will enable talabat to tap into instashop's grocery and retail portfolio, potentially improving service efficiency through integrated logistics networks and shared technology, Mr Al Remeithi said.

"This one-stop solution approach enhances user experience while possibly leveraging economies of scale for competitive pricing," he said. "The deal could intensify competition in the regional delivery market, likely driving innovation as competitors respond to talabat's expanded capabilities."

Talabat is among a number of players in the UAE catering to the key on-demand food and quick-commerce markets, as more consumers and businesses rely on convenience and choice. Its major rivals include Careem, noon and deliveroo, which provide access to a mix of food, grocery, ride-hailing, medicines, home services and payments.

They are all expanding their offering as part of efforts to become super apps, or applications that provide one-stop services across different segments.

"The industry's evolution into a multi-service ecosystem, incorporating food, groceries, mobility and payment solutions, reflects a growing consumer demand for convenience," said Sumesh Krishna, a senior partner at Dubai-based tax advisory HLB Hamt.

Online business channels, including food aggregators and last-mile delivery platforms, are poised to play a “pivotal role” in reshaping the dynamics of the Gulf’s food market, Alpen Capital said in a previous report.

The online food delivery market in the UAE is expected to hit nearly $1.14 billion in 2025 and grow at a compound annual rate of 14 per cent to $1.3 billion by 2029, data by Statista shows.

Globally, the sector is expected to reach a value of more than $257 billion this year, and rise roughly 150 per cent to about $637 billion by 2034, according to India-based Precedence Research.

The industry is currently in "a quite mature stage", having received a boost during the pandemic which "radically" shifted consumer habits, said Alexander Ponomarev, chief executive of Syrve MENA, a restaurant technology service provider based in Dubai. "Since people have built the habits of buying things online, they are now used to getting their food and groceries online as well."

Impact on jobs

One of the main challenges for industry operators currently is the allocation of the workforce within the demand schedule, which is distributed "quite unevenly" across the day, said Mr Ponomarev.

"This leads to increased load during peak hours and hours of idle time when the demand is low. The delivery services aiming to utilise the work hours efficiently are attempting to stretch it to the grocery purchases, which usually happen during different time slots in comparison to the prepared food," he told The National.

However, the talabat-instashop deal may have a "mixed effect" on the gig economy workforce: the merger might accelerate technological integration, potentially altering job quality and quantity, possibly cutting jobs, Mr Al Remeithi said.

"The impact will vary across markets, with densely populated urban areas likely seeing the most significant changes. Overall, while job numbers might decrease initially, the long-term effect depends on how the merged entity balances efficiency gains against workforce expansion and market share gains," he said.

Another challenge is the actual ability of these companies to lower prices: while the talabat-instashop deal aims to boost operational efficiency and may result in better service, decreased pricing is unlikely "as the main cost generating factor here is still the grocery assortment itself", said Mr Ponomarev.

"The pricing has been galloping over the last few years for various reasons globally. Still, enjoying a better service in a market reality that has been formed and maintained is great."Moves by players to increasingly acquire niche platforms to widen market reach may also lead to fewer choices and stifle innovation in the long run, Mr Krishna said.

"The sector is expected to thrive as digital adoption rises, with investments in artificial intelligence, automation and innovative solutions like drone deliveries," he told The National. "Although these advancements promise improved service quality and broader offerings, careful attention is needed to ensure that competition fosters continuous innovation and fair consumer pricing."

Consolidation may lead to fewer service providers, but larger companies can offer more reliable services and competitive pricing due to increased efficiency, said Mr Tricou.

Talabat is among a growing number of platforms aiming to become a super app. Bloomberg

Looking ahead, the industry is being led by technological advancements and changing consumer preferences for convenience, with the emergence of super apps offering diverse services, and the data monetisation linked to it, he said.

"The shift towards super apps integrating services like food delivery, transportation, and payments is a significant trend, as seen with platforms like Careem. Demand is expected to grow, with companies exploring tech solutions. Drones can enhance delivery efficiency, even if drone delivery is heavily linked to regulatory approval," he added.