Moneycontrol PRO
Access insightful & curated financial content with Moneycontrol PRO at just Re. 1/- per day. Use code PRO365.
you are here: HomeNewsBusiness

Analysis-Eat or be eaten? Food delivery apps have knives out as pandemic boom fades

Investor sentiment has turned in 2021 in anticipation of a return to normal, but experts say consumers' ordering habits have likely changed permanently.

October 20, 2021 / 08:42 PM IST

The meal delivery market is expected turn to a phase of consolidation in the coming months as players look to adjust operations after the explosive boom in demand served up to them during the COVID-19 pandemic.

The industry, which includes the likes of Uber Eats, Just Eat Takeaway and Deliveroo, generally saw share prices spike during 2020 as lockdowns and other restrictions kept people eating at home.

Investor sentiment has turned in 2021 in anticipation of a return to normal, but experts say consumers' ordering habits have likely changed permanently.

"Food delivery app usage has not slowed down, even as consumers return to in-person dining more frequently," said Alisha Kapur of Similarweb, which analyses web traffic and app downloads.

Yet most of the companies are losing money and the increasing need for scale means the market is ripe for consolidation, according to industry experts.

Close

COVID-19 Vaccine

Frequently Asked Questions

View more
How does a vaccine work?

A vaccine works by mimicking a natural infection. A vaccine not only induces immune response to protect people from any future COVID-19 infection, but also helps quickly build herd immunity to put an end to the pandemic. Herd immunity occurs when a sufficient percentage of a population becomes immune to a disease, making the spread of disease from person to person unlikely. The good news is that SARS-CoV-2 virus has been fairly stable, which increases the viability of a vaccine.

How many types of vaccines are there?

There are broadly four types of vaccine — one, a vaccine based on the whole virus (this could be either inactivated, or an attenuated [weakened] virus vaccine); two, a non-replicating viral vector vaccine that uses a benign virus as vector that carries the antigen of SARS-CoV; three, nucleic-acid vaccines that have genetic material like DNA and RNA of antigens like spike protein given to a person, helping human cells decode genetic material and produce the vaccine; and four, protein subunit vaccine wherein the recombinant proteins of SARS-COV-2 along with an adjuvant (booster) is given as a vaccine.

What does it take to develop a vaccine of this kind?

Vaccine development is a long, complex process. Unlike drugs that are given to people with a diseased, vaccines are given to healthy people and also vulnerable sections such as children, pregnant women and the elderly. So rigorous tests are compulsory. History says that the fastest time it took to develop a vaccine is five years, but it usually takes double or sometimes triple that time.

View more
Show

Kapur said it was "very rare" for significant numbers of consumers to change the meal delivery apps they're accustomed to using, with "a few exceptions that demonstrate the largest players are only grabbing more share".

Stock prices across the sector have stabilised after the pandemic-driven spike and many players have actually seen them fall this year, also hit by developments such as a 15% cap on commission fees they can charge restaurants in New York City, imposed in August.

While Amazon-backed Deliveroo raised its full-year guidance on Wednesday, its shares are still trading well below its 390 pence March IPO price.

DIGESTING GRUBHUB

Just Eat Takeaway has fared the worst, though.

Its $7.3 billion acquisition of American rival GrubHub in June looked smart against the new industry landscape, but it has left the Dutch-based company heavily exposed to the New York cap, which it says will cost it around 100 million euros ($116 million) in the second half of this year.

Takeaway shares have sunk more than 20% this year prompting a major long-term shareholder, Cat Rock, to call on management to sell assets and explore strategic combinations.

As a result, the company is at the centre of industry deal talk.

Potential targets for acquisition, according to analysts, include Takeaway's 33% stake in iFood of Brazil, valued at more than $3 billion, parts of its U.S. business, which requires significant investment, and its French business, which trails Uber and Deliveroo in that market.

Takeaway reported weaker than expected third-quarter orders last week, but CEO Jitse Groen said it was seeing business improve in several countries as workers returned to offices and the weather worsened heading into winter.

Groen and other senior executives are due to meet worried investors on Thursday to outline strategy.

"Investors are looking for a clear plan to improve in the U.S., a clear plan to defend market shares in Europe, and especially in Germany, said Clément Genelot, an analyst at Bryan Garnier & Co, who launched coverage of Takeaway with a well-timed "Sell" recommendation in May.

"And also a clear vision and a clear plan to quickly roll out grocery delivery."

Takeaway said it was confident it would address key investor concerns, including an update on "portfolio management" and investment priorities, at the capital markets day.

'LEANING INTO GROCERY'

Grocery delivery is proving another hot area for deals and partnerships in the industry.

Deliveroo has been most aggressive in working with grocery chains, with the support of 12% shareholder Amazon.

Uber told Reuters its meal delivery business was also "very much leaning into grocery", pointing to a deal with Britain's Sainsbury's and France's Carrefour.

Others are looking to take advantage on a blizzard of launches of "on demand" grocery delivery startups, especially in Europe.

DoorDash has invested in Germany's Flink. Delivery Hero, one of Takeaway's oldest competitors, said on Tuesday it has taken an 8% stake in another German startup, Gorillas.

Delivery Hero, a prolific investor, owns 7.4% of Takeaway and a 5.03% stake in Deliveroo. It also owns 37% of Glovo, and the pair sold each other operations in the Balkans and in Latin America during the pandemic.

Technology investor Prosus in turn owns 27.42% of Delivery Hero and a majority stake in Brazil's iFood, setting the Prosus-Delivery Hero pair up as possible deal brokers.

 
Reuters

stay updated

Get Daily News on your Browser
Sections
ISO 27001 - BSI Assurance Mark