LONDON (Reuters Breakingviews) – Sugar is a quick fix for balancing salt and acid. Food delivery companies are similarly looking for ways to align their need for more customers with their investors’ need for profit. The secret ingredient could be that they are selling their delivery technology to retailers as a service.
DoorDash, Uber Technologies and Grubhub owner Just Eat Takeaway are quickly adapting to the post-pandemic reality: Fewer new customers are ordering takeaways, just as investors grow hungrier for profits. It would always be a challenge to match the rapid expansion of the past two years. In the three months to June, sales growth was 30% year-over-year, at $28 billion DoorDash, led by Tony Xu, at 83% https://ir.doordash.com/financials/quarterly-results/default.aspx for the same period last year. The gross profit margin shrank to 43% from 53% a year ago.
Curbing spending on marketing or hiring is a step toward profitability. Finding new revenue streams, for example by letting restaurants advertise on platforms, is another. Uber boss Dara Khosrowshahi hopes to increase ad revenue in his delivery division sevenfold to $1 billion by 2024.
But getting more customers is key to lowering costs per order and improving efficiency. One option is for companies like DoorDash to offer fast delivery options as a service. For a monthly subscription, supermarkets or other retailers can use the know-how to track prices and drivers. The technology suppliers can also get a share of the order. More than 100 retailers, including Apple and Walmart, already have such ties to Uber; DoorDash builds warehouses and provides drivers for Loblaw express-delivery-of-grocery-and-convenience-items-to-customers-in-canada, Canada’s largest grocer.
Since the technology already exists, the detour should yield juicier margins. Software subscription giants, from Salesforce to SAP, have a gross profit margin of about 70%, compared to 40% for delivery companies like Amazon-backed Deliveroo. That translates into higher investor ratings — on average, software companies trade at nearly 7 times 2024 revenue. For example, if Uber could generate 5% of its projected delivery revenue in 2024 through technical outsourcing, its revenue would grow by more than $700 million. grow, based on analyst estimates compiled by Refinitv. On software-style multiples, that’s worth about $5 billion in today’s money, nearly a tenth of Uber’s current value.
London-listed delivery service Ocado is offering a warning. It has outsourced its robotic warehouse technology for years, but has not yet turned a profit. To get the secret sauce the desired result, retailers will have to be more lucky with the delivery method.
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Deliveroo reported a pre-tax loss of £147 million ($177) on Aug. 10 https://dpd-12774-s3.s3.eu-west-2.amazonaws.com/assets/2116/6010/7627/Deliveroo_H12022_Interim_Results_RNS.pdf million) in the first half of the year compared to £95 million a year ago. On an annual basis, gross transaction value growth slowed from 12% in the first quarter to 2% in the second.
The British food delivery company said the slowdown was the result of “increased consumer headwinds”. It also announced the launch of an advertising platform and the closure of its operations in the Netherlands.
DoorDash on Aug. 4 reported revenue increased 30% to $1.6 billion in the three months ended June 30. Net loss per quarter was $263 million, due to heavy investments in international expansion and non-food categories.
Uber Technologies said on Aug. 2 that its delivery division revenue, which includes Uber Eats, is up 37% to $2.7 billion year-over-year in the quarter ended June, compared to 122% year-over-year revenue growth. in the same quarter in 2021.
Jiffy, a privately held company, said on May 18 that it would shut down all consumer-oriented delivery activities and become a dedicated software company.
(Edited by Ed Cropley and Oliver Taslic)
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