Food delivery’s next gig is software as a service


Signage for Just Eat is seen next to Uber Eats and Deliveroo adverts on a restaurant window in London, Britain August 5, 2019. REUTERS/Toby Melville

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LONDON, Aug 10 (Reuters Breakingviews) – Sugar is a quick fix for balancing salt and acid. Food delivery companies are also looking for ways to balance their need for more customers with their investors’ need for profit. The secret ingredient could be selling their delivery technology as a service to retailers.

DoorDash (DASH.N), Uber Technologies (UBER.N) and Grubhub owner Just Eat Takeaway (TKWY.AS) are quickly adapting to the post-pandemic reality: Fewer new customers are ordering takeout, as are investors are increasingly greedy for profits. Coping with the rapid expansion of the past two years was always going to be a tall order. In the three months to June, Tony Xu-led DoorDash’s revenue growth to $28 billion was 30% year-on-year compared to 83% for the same period last year. Its gross profit margin fell to 43% from 53% a year ago.

Controlling marketing or hiring expenses is a step towards profitability. Finding new revenue streams, such as letting restaurants advertise on platforms, is another. Uber boss Dara Khosrowshahi hopes to increase its delivery division’s ad revenue sevenfold by 2024 to $1 billion.

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But attracting more customers is crucial to lowering costs per order and improving efficiency. One option is for the likes of DoorDash to offer fast delivery capabilities as a service. For a monthly subscription, supermarkets or other retailers can use the know-how to track prices and drivers. Technology providers can also get a share of the order. More than 100 retailers, including Apple (AAPL.O) and Walmart (WMT.N) already have such a connection with Uber; DoorDash builds warehouses and provides drivers for Loblaw (L.TO), Canada’s largest grocer.

Since the technology already exists, the detour should yield juicier margins. Software subscription giants from Salesforce (CRM.N) to SAP (SAPG.DE) have gross profit margins of around 70%, compared to 40% for delivery companies like Amazon (AMZN.O) Deliveroo (ROO.L). This translates to higher ratings from investors – on average, software companies are trading at nearly 7x their revenue in 2024. If Uber, for example, could generate 5% of its expected delivery revenue by 2024 thanks to technology outsourcing, its revenue would increase by more than $700 million, according to analyst estimates compiled by Refinitv. On a software-like multiple, that’s worth about $5 billion in today’s money, or nearly a tenth of Uber’s value today.

London-listed grocery delivery company Ocado (OCDO.L) offers a caveat. It has been outsourcing its robotic warehouse technology for years, but has yet to make an operating profit. For the secret sauce to deliver the desired result, retailers will need to have better luck with the delivery method.

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Deliveroo on August 10 announced a pre-tax loss of 147 million pounds ($177 million) in the first half, compared to 95 million pounds a year ago. Year-on-year growth in gross deal value slowed from 12% in the first quarter to 2% in the second.

The UK food delivery company said the slowdown reflected “increased headwinds for consumers”. It also announced the launch of an advertising platform and the closure of its operations in the Netherlands.

DoorDash on August 4 announced that revenue grew 30% to $1.6 billion in the three months ended June 30. Its quarterly net loss was $263 million, due to heavy investments in international expansion and non-food categories.

Uber Technologies on Aug. 2 said revenue for its delivery division, which includes Uber Eats, rose 37% to $2.7 billion year-on-year in the quarter ended June, versus growth revenues of 122% year-over-year in the same quarter in 2021.

Private company Jiffy said on May 18 that it would stop all consumer-facing delivery operations and become a dedicated software company.

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Editing by Ed Cropley and Oliver Taslic

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