Glynn Davis is one of the UK’s most knowledgeable and experienced retail journalists, founder of Retail Insider, and Ecommerce Age’s monthly columnist.
Take-away food has never been something my family and I have purchased with any great frequency and we’ve certainly never had any of these foods delivered with any regularity. But during the various lockdowns as a result of Covid-19 we became converts – largely because we had little choice of course.
As things have opened up we’ve reverted back to our previous behaviour and take-away food deliveries are again off the menu in my household. It would seem that we are the exceptions among the bulk of the UK population because delivery and take-away sales still remain at more than twice the level seen before Covid-19.
Figures for this February were 131% higher than the same month in 2019, although these are 17% lower than those in February 2021, according to CGA & Slerp Hospitality at Home Tracker. Interestingly, it is delivery that is powering these numbers as this is almost four times higher than it was three years ago.
This is clearly terrific news for the delivery firms Deliveroo, Just Eat and Uber Eats who have well and truly proven the appetite for their services by the general public. Deliveroo recently released its annual figures for 2021 and it revealed an impressive 72% increase in order numbers and the value of the orders it received during the year jumped 71% to £3.57 billion. As well as delivering take-away food the company was also able to add a new strand to its business during the pandemic by fulfilling orders for major grocery retailers and this now accounts for 8% of orders by value.
Lots of other metrics looked equally tasty but what continues to look unappetising is the losses it racks up. They widened considerably during 2021 as a result of the company spending more on marketing as well as incurring higher overheads. Combined they jumped by a hefty 75% to £629 million as Deliveroo sought to raise awareness and attract new customers. This translates into marketing running at 4% of order value and overheads at 5.5%.
The company has stated it is to cut this by a third and paints the picture of an idyllic scenario where sales and fees from its restaurant and retail partners increase while its costs of marketing and overhead reduce. Against this backdrop it is predicting profitability will be reached within two years. Although this news seems to have appeased its investors, who have certainly been jittery over the 12 months since Deliveroo’s disastrous IPO, there remain some serious worries for me.
Surely when the marketing tap is turned off the customer numbers will dwindle and churn will increase because these people will undoubtedly be tempted over to rivals like Just Eat and Uber Eats who lure them in through promotions. The only way that Deliveroo will have the sunny environment it outlines is if its rivals become impotent. This is not just a problem for Deliveroo because the others have just the same difficult scenario.
The quick delivery players are also in the same leaky boat. While promotions abound, as they fight for market share, the path to profitability looks strained. The recent $11.8 billion valuation attributed to Getir after its recent fundraising can surely only be justifiable if the business has the whole field to itself. Some of its myriad rivals have admittedly already fallen but there remains serious overcapacity in this market. It will certainly have to fight off much more competition before it can justify its lofty valuation.
The delivery market in its various formats still feels very much like a winner-takes-all scenario to me because for profitability to be achieved its surely requires little competition because the margins are invariably tight – even though the delivery firms charge painfully high fees to many of their restaurant and retail clients.
Arguably the most exciting opportunity for Deliveroo continues to be its delivery-only Editions kitchens of which it continues to roll-out globally and added 100 in the past year. These dedicated units provide a cost-efficient route to deliver take-away foods from a variety of brands. But since they only represent a modest proportion of the business’s overall order value they are unlikely to be a sufficiently big contributor to smooth out the company’s unavoidably rocky path to consistent profitability.
