Deliveroo announced last week that it was leaving the Spanish market. Deliveroo, which was recently listed, explained its reasoning in market terms. It noted that its market position for Spanish on-demand delivery was not sufficient to justify continued investment. Unmentioned was a Spanish legal change that requires companies who previously relied on freelance couriers, to hire their delivery staff.Edith Yeung, Race Capitals, explained the Deliveroo decision to The Exchange. She said that Spain doesn't have a large population which could mean that there is a ceiling on the upside of being the #1 market in Spain.Although she acknowledged that she does not have access to Deliveroo data she made a comment that echoed the company's statement that Spain accounted for less than 2% in its aggregate gross transaction values (GTVs) during the first half 2021.The Exchange explores markets, startups, and money.It's available every morning at Extra Crunch. You can also subscribe to The Exchange newsletter every Saturday.Although one company leaving a market isn't a major deal, we were interested in Deliveroos comments about the need for market leadership and something similar to it to justify continued investment. This is the reality that startups face when they try to compete for market positions in cities and countries.Some startups markets have tended to be monopolies or dual-polyes. Uber-Didi's battle in China resulted in the two companies agreeing not to compete. Zomato recently purchased Uber's Indian Uber Eats business. Uber and Lyft's smaller competitors in the United States have long been forgotten, and both ride-hailing giants are still fighting for supremacy.This trend of consolidation is also evident in other examples. Food delivery is concentrated in the hands of the most prominent players. Postmates, which was an independent company, failed to survive and became part of Uber's operations. Maybe Gopuff can win a place in the market. However, DoorDash and Uber Eats combined accounted for 83% U.S. food delivery in June, according to Second Measure data.It's not surprising that some startups markets favor monopolies and duopolies. Patents are a way for countries to protect intellectual property. They can limit new innovation to a few players over a long period of time. Monopolies can also occur when a new technology is developed or a method of doing business is created. Google's internet parsing search engine tech, for instance, led to a near-monopoly in many markets.Monopolies can develop in businesses that have large scale efficiencies. This happens when the dominant players merge with smaller competitors to create a monopoly. This is what Standard Oil is famous for.The interesting thing about the on-demand delivery sector is its high cost but easy access. This has led to many companies jumping in the sector all over the globe. On-demand delivery is therefore not like other patent-protected markets. We might expect monopolies or extinguishment of competition past the top two competitors.It is also an industry in which economies of scale can play an important role in profit generation. Increased competition can lead to price wars or advertising tussles. This market is ripe for consolidation, even though it does not have an exploitable IP.
