I’ve been meaning to share my thoughts on General Atlantic’s investment in Yemeksepeti for quite some time. General Atlantic is a growth equity investor managing $17B, including investments in popular internet names like Facebook, Box, and Gilt. Yemeksepeti is the leading online food ordering service in Turkey, with smaller operations in the UAE and Russia. General Atlantic’s $44M investment in exchange for a minority stake in Yemeksepeti makes this the largest venture capital investment of the year in Turkey.
Since the investment took place as recently as September, we have yet to see where Yemeksepeti will be applying its newly acquired resources. However, there are two significant opportunities for expansion. The first is geographic, and the second is into adjacent businesses. Geographic expansion is the safer bet with a clear path to short-term monetization. However, the entry into adjacent businesses with at times unproven business models is necessary for Yemeksepeti to develop beyond its origins as an online food ordering service. By taking the right steps now, the firm has the long-term potential to become the first name which comes to mind in the restaurant industry.
Let’s start with geographic expansion. In order to understand Yemeksepeti’s geographic growth opportunities, we first need to understand the nature of the online food ordering business. Yemeksepeti is the first and pretty much only name which comes to mind when someone in Turkey wants to order food online. This is because it is the single location that houses the largest number of restaurants in the country. This makes it attractive for users who have access to an incredibly wide range of dining options under a single platform. In turn, the large number of users makes the site more attractive for restaurants who want to increase their sales volume through a cost-effective channel. This is the classic case of a virtuous circle where restaurant relationships drive user acquisition which attracts yet more restaurants, ad infinitum. Being the first player to launch this virtuous circle has tremendous benefits. You certainly still need to invest in maintaing and developing restaurant relationships, presenting a simple user interface, and offering great customer service both pre and post-order. However, being the first mover to capture the significant network effects inherent in the online food ordering space is the key to succeeding in this business.
This is exactly the role that Yemeksepeti fills in Turkey. This has made it very difficult for upstarts like Istelezzet to take off. The switching costs for users, specifically in terms of foregone dining options, are simply too great. Although working with another online food ordering service doesn’t represent an additional cost for restaurants, they simply don’t have an incentive to be present on a platform without users. However, as Yemeksepeti now looks to expand into other geographies, the same factor which facilitated its success in Turkey will make it more challenging to succeed in other markets. Yemeksepeti’s main competitors Just-Eat and Delivery Hero are also well funded, having raised $64M and $50M respectively in the last 6 months. Just-Eat has a strong presence in the UK, Spain, and several other smaller Western European countries, as well as Brazil and India. Delivery Hero is present in some of the same Western European countries as Just-Eat, as well as Germany and Austria. The company’s emerging market presence includes Russia, China, and Mexico. The solution for Yemeksepeti is not to forego geographic expansion, but to focus on growing in those countries where its competitors have not captured a market leading position. These include populous markets in the Middle East like Egypt and Saudi Arabia, as well as Eastern European countries like Ukraine, Poland, and Romania. By prioritizing these untapped markets, Yemeksepeti can capture the same pole position which paved the way for its huge success in Turkey.
The second expansion opportunity for Yemeksepeti is in adjacent businesses. At this stage it’s helpful to think about an individual’s dining journey. Take yourself as an example. You first decide whether to eat at home or to eat out. If you decide to eat in, you can either prepare your own food or place an order for delivery. Yemeksepeti currently only serves you in the second case. It therefore has the opportunity to build a business which delivers the ingredients required for specific dishes to you when you want to prepare your own meal.
What if you decide to eat out? Your first step is to decide where to eat. A source like Yelp in the US, or Mekanist in Turkey, which presents users with reviews of specific dining options based on filters like cuisine, location, and price, is a great starting point.
After you decide where to eat, you may want to make a reservation. OpenTable in the US is successful in this space. Rezztoran has attempted to offer the same service in Turkey with limited traction so far.
Once at the restaurant, instead of relying on a traditional menu and lengthy waiter interactions, there’s an opportunity to enhance the dining experience through technology. E la Carte, a Romulus portfolio company, addresses exactly this need through its Presto tablet. The Presto lets diners browse a restaurant’s menu, place their order, play games, pay the bill, earn loyalty rewards, and provide feedback to the restaurant. The result is a 10% increase in sales per table and a near 10 minute reduction in table turnover times. A win for the restaurant and a win for the customer. While many competitors offer smartphone and tablet applications which customers must download to access similar functionality at specific restaurants, this approach has met with limited customer adoption. E la Carte is successfully driving customer growth by incurring the upfront hardware costs and offering the Presto directly in restaurants.
A good starting point for Yemeksepeti to prioritize these adjacent businesses is to look not only at which services are being implemented in other countries but also the success of monetizing each service. This approach would suggest that entering the restaurant reservation and in-restaurant dining technology spaces are most attractive and should be a first priority. These services have not only gained widespread adoption in the US but also have clear revenue models based on a combination of subscriptions and commissions. Among the other adjacencies, the restaurant review space is likely to be a second priority as it has yet to establish a clear path to profitability. The advertising revenues of restaurant review platforms are currently insufficient to cover the operational costs of the business. The delivery of specific ingredients for at-home cooking is likely to be a third priority as customer demand for this model has yet to be proven in other countries.
After deciding which adjacent businesses to enter, Yemeksepeti needs to determine the most effective way to grow in each. This could be organically, through the acquisition of a capable local player as in the case of restaurant review platform Mekanist, or by serving as the local partner of a foreign player. Whichever path it ultimately takes, expansion into adjacent businesses has tremendous potential to complement Yemeksepeti’s geographic expansion. If Yemeksepeti were to grow in these adjacent businesses, it would gain much more than the contribution of each individual business. A customer’s actions and revealed preferences across different stages of the customer journey can provide Yemeksepeti with a treasure trove of data. By properly mining this unique data set, Yemeksepeti has the potential to offer its customers increasingly personalized journeys, while also giving restaurants and advertisers the opportunity to deliver Yemeksepeti users highly targeted promotions.