What sector better illustrates the errors of the Covid era than home food delivery? If we include the Eats division of the giant Uber, the main groups in this sector in Europe and the United States have accumulated more than $20 billion in operating losses since their IPOs, even though they have completed the market concentration. The German Delivery Hero, which operates popular brands such as Glovo, Foodora and Foodpanda, has been listed since 2017. The Dutch Takeaway preceded it in 2016, before buying the world No. 4, the British Just Eat, in 2020. In December of the same year, the American DoorDash entered the stock market before the British Deliveroo imitated it in April 2021.
The shares of these four companies are now trading well below their peaks: – 89% for Just Eat Takeaway, – 72% for Delivery Hero, – 65% for Deliveroo, – 55% for DoorDash. Investors are scrutinizing their business models and now expect them to demonstrate sustainable and profitable growth.
The period of growth fueled by the lockdown has ended and behaviors have returned to what they were before the pandemic. No people afterwards. Development prospects are more limited. Annual growth in the sector is expected at 8%, compared to 15% three years ago.
The focus was on costs. For years, venture capital funds have invested money in these companies that subsidized deliveries in order to attract customers with low prices, and thus gain market share. But, with the rise in interest rates, it was necessary to make each race profitable and no longer hope to amortize the fixed costs over a larger number of races.
“Quick commerce” is struggling
This search for profitability has got the better of home grocery delivery specialists, with the bankruptcies and successive acquisitions of Gorillas, Flink and Getir. For meal delivery, prices for the service have had to be significantly increased as costs have been dynamic, with constant pressure from regulators and labor groups on workers’ rights.
Demand has proven surprisingly resilient in the face of this price increase. New products have appeared on this channel, such as beauty products from the distributor Ulta with which DoorDash has signed a global partnership in the United States. Furthermore, advertising has become an important source of revenue, with a higher margin. Market concentration has given way to market sharing, with players leaving countries where they were not number 1 or 2.
The territories served have also been reviewed, with particular attention to urban areas which have more restaurants and customers, and which allow delivery people to make shorter journeys and optimize shopping. In the same vein, in January, Delivery Hero sold its minority stake in the company Deliveroo. Finally, the three European players raised their forecasts. The sector is valued at 6.8 times 2025 operating income, not far from the 6 times multiple of European food retailers like Tesco and Carrefour.
But beyond an improved operational performance, it is on their ability to actually generate cash that these groups are expected. The American Doordash, which controls 66% of its domestic market – the second, Uber, holds 25% – has announced it in 2023. The three European players hope for this year. They still have to digest the depreciation of their acquisitions, sometimes dearly paid for, and the generous employee incentive mechanisms in the form of stock options. It is only under this condition that stock prices will recover and give investors hope of regaining their stake. Amazon, which invested $575 million in Deliveroo in 2020, recently took advantage of the price’s rise to offload part of its position.
Robin Rivaton is Managing Director of Stonal and a member of the Scientific Council of the Foundation for Policy Innovation.
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