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Just Eat Delivers Cold Takeout


Image source: Luca Lorenzelli / Shutterstock.com

What's going on?

Ouch! Shares of food delivery app Just Eat fell almost 13% on Tuesday after it announced that it would spend around £50 million building its own delivery fleet (tweet this).

What does this mean?

Takeout delivery is big business these days. Just Eat became one of the UK’s 100 largest companies last year and is battling for market share with services including Deliveroo, Uber Eats and, naturally, Amazon Restaurants. But until now, Just Eat’s app mostly relied on restaurants delivering themselves – saving the company money on wages and making it more profitable than its competitors.

Investors seemed taken aback, then, when Just Eat announced that it would spend millions on building up its own delivery service. The reasoning seems to be that if Just Eat wants to partner with the likes of KFC or Burger King, it’ll need to organize and manage the risks of delivery itself (like its competitors are already doing).

Why should I care?

For markets: Shares of Just Eat fell by their most in years.  

While much of the company’s latest earnings report was positive – its annual sales grew by 45% in 2017 – Just Eat reported an overall loss for the year thanks to a £180 million hit from its Australia and New Zealand operations. Investors appear worried about Just Eat’s future profitability given its big spending plans – but it’s also true that to make money, you’ve often got to spend money!

The bigger picture: Big tech conglomerates might be able to undercut smaller delivery firms.

Competition from US giants (some of which, like Uber, already have a transport infrastructure) is pushing other food delivery apps towards managing delivery in-house in order to remain attractive to restaurant clients. And while at least one industry CEO says the key to winning customers is efficiency (i.e. who can offer the lowest delivery fee), the deep pockets of Amazon and Uber mean they can afford to deliver at a loss for now – and perhaps even long enough to starve smaller rivals.

Originally posted as part of the Finimize daily email.

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