The latest gimmick in food delivery could be huge for small restaurants

Key Points
  • $2 billion start-up Deliveroo is pushing its novel delivery-only central kitchen concept to cities around the globe
  • Called "Deliveroo Editions," the model could help local restaurants expand
A food delivery cycle courier waits for orders from Deliveroo, operated by Roofoods, in London, U.K., on Dec. 22, 2016.
Simon Dawson | Bloomberg | Getty Images

Food delivery start-up Deliveroo, reportedly valued at over $2 billion after its latest round of funding, plans to push out a novel food delivery strategy to more cities around the globe.

The big winners of the global tech firm's move are likely to be small local restaurants.

The start-up says it is devoting "a significant chunk" of funds into expanding a model that isn't offered by publicly-traded rivals Delivery Hero and Just Eat. It's called "Deliveroo Editions" and here's how it works: Deliveroo builds its own kitchen facilities, and then it invites local restaurants to operate a station on those premises, food can then be delivered quickly from that location.

Each space provided to restaurants is fitted with grease filters, refrigerators and stoves.

Although it means coming under the umbrella of a multinational tech company, the central kitchen formula could actually help local restaurants expand their operations. For one, it offers a low-risk way to bring the business to a new market, according to Dennis Tsakiris, owner of Greek restaurant Blu Kouzina in Singapore.

Tsakiris' restaurant was already on Deliveroo's primary food courier service, and he joined "Editions" in April when it launched in the city-state.

Restaurant owners who work in Deliveroo's takeout kitchen save significantly on overheads as they can expand their reach without setting up new premises, Tsakiris told CNBC.

They also benefit from the firm's "social media, IT and marketing specialization, that would be a huge cost for any one restaurant to bear."

The winners and losers of the ultimate food wars

London-based Deliveroo conveys the consumer data findings to "Editions" restaurant owners, who can then create new offerings in a more informed way, said Ashwin Purushottam, the start-up's head of special projects in Singapore.

Since their partnership with "Editions," Tsakiris and his daughter have launched a second product line, which focuses on grain bowls. Both the original and new offerings are seeing strong demand, Tsakiris said.

"Editions" is Deliveroo's first foray into another part of the food supply chain, according to Purushottam.

But while not many start-ups are running a similar central kitchen model, the situation could soon change. In Singapore, for example, Goldman Sachs-backed competitor Food Panda is expected to launch a similar model.

Nonetheless, Purushottam projected success for Deliveroo because of its data-driven approach. Some rivals, he claimed, rely on "hunches and theory."

Deliveroo currently operates in about 140 cities globally. The company's revenue grew to about 128.56 million pounds (currently about $170 million) in 2016, but high costs meant the firm recorded an operating loss of about 141.05 million pounds (now about $187 million), Reuters reported.