Chopsticks At Dawn

0614_Deliveroo

Image source: Thomas Dekiere / Shutterstock.com

What's going on?

On Wednesday, Deliveroo – an online food delivery service that competes with Uber Eats in over 200 cities – announced expansion plans, which sent the stock of UK competitor Just Eat down by 7%.

What does this mean?

Deliveroo has traditionally partnered with “eat-in” restaurants that don’t offer their own delivery service. Deliveroo’s swarm of drivers helps these restaurants reach customers at home. But a shift in the company’s five-year-old strategy will see it encourage eateries with existing delivery drivers (like pizza and fried chicken spots) to join the network, too. These types of casual dining locations were historically considered takeaway “marketplaces”, which focus on connecting hangry customers with their food – and don’t get involved in delivery.

Why should I care?

For markets: A chilly day for takeaway marketplace stocks.


There’s likely to be more competition in store for takeaway marketplace operators, since customers will increasingly be able to get the same food on multiple platforms (making using more than one unnecessary). As a result, marketing costs could rise and profits may fall. Deliveroo aims to add 5,000 new delivery restaurants in the UK – but investors likely expect it to copy the strategy in more territories, which could be why stocks of Germany’s takeaway marketplace Delivery Hero and The Netherlands’s Takeaway.com fell by 1% on Wednesday.



The bigger picture: Which business model is best? Who knows.


Deliveroo has raised nearly $900 million from venture capital investors, and has used this cash to grow its sales. However, it’s yet to turn a profit (tweet this). This is likely due, in part, to the cost of “gig economy” delivery drivers – who might become more expensive, as courts rule that some might have to be treated as full employees (making them eligible for benefits and holiday pay). Marketplaces, on the other hand, are pretty profitable: Just Eat’s annual profit is some 40% of its sales (a.k.a. profit margin). Time will tell which model will endure – or whether the answer might be some combination of the two.

Originally posted as part of the Finimize daily email.

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