What next for Just Eat Takeaway?

Just Eat Takeaway forms a major part of the global food delivery space. In its 2020 annual report the company states that its key strategic objective is to achieve a dominant position in every market it operates in. Currently in 24 countries, the group is the leading food delivery player in around 70% of them.

However, the company – like many other operators within food delivery - finds itself under pressure on several fronts.

Has delivery growth peaked?

The first issue is the current state of the eating out market. Data from Lumina Intelligence’s UK Foodservice Delivery Market Report show that the Covid pandemic boosted foodservice delivery turnover by 48% year-on-year, an additional +£3.7bn. 

Mark Brumby, analyst at Langton Capital, questions how much of this explosive expansion in the delivery market will continue as society and hospitality reopens. “We might be past the peak,” he says. “Delivery is a non-social experience. Delivery companies don’t pretend there is any social aspect, whereas restaurants are social, rather than a support service.”

Lumina’s report concurs with this point, forecasting a turnover decline of -7.6% for 2021, with growth returning once more from 2022 onwards. The report states it will be up to operators and delivery aggregators to ensure that pandemic-driven consumer behaviour around delivery becomes habitual, rather than allow a return to the pre-pandemic pattern of an occasional indulgent treat.

Making money from delivery

Brumby goes on to question also whether online aggregators can make money. With delivery orders currently growing faster than marketplace orders, and a battle for share being fought, there are concerns around profits being squeezed.

Delivery orders - where an online platform uses couriers to deliver an order to a customer - are more expensive to fulfil than marketplace equivalents. Marketplace orders are traditionally where Just Eat Takeaway has been strong, and involve less costs, whereas delivery orders are often where an aggregator platform can lose money.

The main way round this issue is to try and improve unit economics. This is the relationship between the revenue received versus the costs associated with running the delivery service. One possibility is to raise fees, but this is a risk when scale and market share are so important for survival.

Peter Backman, industry commentator, echoes Brumby’s point of view, suggesting delivery “could be forever unprofitable”. 

“Even when you have driven out your competition, it is still a lower level of profit than your marketplace business.

“Last mile delivery is a highly-competitive activity. Although the market is growing rapidly there is huge pressure on prices.”

Market growth over profits

Perhaps related to this point, Just Eat Takeaway has seen its share price slide, which declined further following recent company guidance forecasting negative adjusted EBITDA margins for full year 2021. During the webcast accompanying its Q2 results, Jitse Groen, the company’s chief executive, reiterated the company’s intention to prioritise market growth over profitability.

Groen’s statement may have been intended as a warning to the competition.

“If you are the market leader you will always be shot at,” says Brumby, referring to the recent efforts of Deliveroo and Uber Eats to gain market share in the UK. These included high levels of vouchering, expansion into new towns and cities, and an increasing focus on grocery.

Just Eat Takeaway has itself been focusing on several areas for growth, admitting that the UK market was “historically under-invested” and had previously been “a drag on order growth.”

Efforts to grow share

The company has been rolling out its delivery fulfilment model alongside its legacy marketplace offer, with delivery now accounting for almost 40% of orders.

In addition, the company has been extending partnerships with key chain operators. The company now provides delivery services for 1,000 McDonald’s outlets across UK and Ireland, as well as 500 Costa Coffee and 450 Starbucks sites. The company has also run trials with Pizza Express.

With London accounting for approximately half the total delivery market in the UK, Just Eat Takeaway is concentrating much of its efforts on bolstering its presence in the capital. It has been adding more restaurants to its network and is, “taking market share from our competitors,” stated Groen, as he highlighted the company’s ‘triple digit’ order growth in London during the first half of 2021. The platform has now reached 30% share of online transactions in London according to Just Eat Takeaway’s data.

Combined, these efforts to drive growth appear to be paying off, with the company reporting first-half orders for the UK reaching 135m, up 76% compared to the same period in 2020.

What next?

The group has undertaken two major deals over the past couple of years, the latest being the recently completed acquisition of Grubhub for £5.6bn, the number three player in the US behind DoorDash and Uber Eats.

While this will have helped to reinforce Just Eat Takeway’s global position, it means there will likely be a lot of internal focus during 2021-22 on reorganising the business and achieving the best synergies possible. A potential risk here is that while this happens, the competition continues to innovate, gaining first mover advantage in potential areas of growth.

This has already happened to an extent, with Uber Eats and Deliveroo diversifying into new areas of business, such as dark kitchens and grocery delivery, Just Eat Takeaway so far showing little interest in either.

Here, Backman raises the point that, “Just Eat might be adopting a deliberate tactic of learning from its competitors, or it is wanting to remain focused on its core business.”

Backman refers to the fact that Deliveroo launched its Editions kitchen concept in 2017. While saying they would aim for 200 units, currently he estimates they have less than 50 in operation, which suggests “dark kitchens are not a great model for Deliveroo. They are not a route to salvation.”

The general consensus is that delivery isn’t going to fade away, purely because hospitality has fully reopened and all capacity restrictions are removed. But there is little doubt the delivery model will likely have to evolve.

In terms of how this might happen, Brumby speculates Just Eat Takeaway and its peers will eventually need to decide whether to continue to be a delivery company focused on food, or instead, have a wider offering. He asks the question: “Would you rather be a delivery company that delivered more things, or a delivery company that owned the whole of the pipeline? It’s quite possible, indeed likely, that the food delivery companies ‘do an Amazon’ and start to back up into bricks and mortar.”

However, Backman sees a risk with such a move: “As a delivery company, you don’t want to alienate your key customers, which are the restaurants themselves.” 

Whether it is via grocery delivery or a push into dark kitchens or even restaurants, expect Just Eat Takeaway and its competitors to continue to seek out new sources of revenue and profit growth. “They will push on every door they see,” suggests Brumby. “And if any of the doors open they will go through them and see if there is any money there.”