Food Delivery companies - is it worth investing in them? [Guide]

One of the most famous mega trends is the development of applications offering food orders and delivery from restaurants (the so-called food delivery). The idea of ​​their creation was very simple. Ordering food with delivery has been popular for several years. However, at the beginning it was done from the phone, then with the help of websites or individual applications. However, this method of ordering caused a number of problems. 

One of them was the problem with ordering something new. It was necessary to search for an interesting type of cuisine (Italian, Tex-Mex, Chinese) and read reviews about the restaurant and hope that it is possible to deliver food home. It was a time-consuming process, so customer experience was not very good. 

Another problem was on the restaurant side. They had to create an efficient system of delivery as well as receiving and executing orders. This resulted in an increase in costs in the initial phase of offering food delivered to your home. The next barrier appeared for newly emerging restaurants and bars. Reaching a wide range of customers required either large advertising expenditure or locating restaurants in places with heavy traffic of potential customers (shopping malls, representative places in cities), which resulted in an increase in the costs of running a business.

These problems laid the groundwork for the "explosion" of foodtech companies. Thanks to companies operating in the Food Delivery industry, applications have started to be developed that enable ordering food from hundreds of restaurants from a smartphone or a web application. Take-away buyers can easily track the opinions of a restaurant (in the form of a rating) and order food from their favorite or new restaurant. On the other hand, restaurants do not need their own employees responsible for delivering food to the customer. At the same time, by connecting to the platform, the restaurant gains access to potential customers from all over the city. Food ordering platforms use the platform effect. The more consumers connected to them, the more restaurants want to reach them. At the same time, a wide selection of restaurants and affordable prices mobilize additional customers to use the platform.

Of course, to be well positioned in the search engine, you have to pay extra money. It is also worth remembering that companies from the Food Delivery industry are not charity institutions and charge a commission on the transaction value for their services. Commission (take rate) was sometimes over 25% of the contract value. In the case of many restaurants, this raises accusations of "dishonesty" and high fees. However, on the other hand, restaurants gain access to a wide range of customers, which increases the recognition of restaurants on the catering market. At the same time, many applications provide a delivery service, which relieves the cost of restaurants.

It is also worth mentioning that during lockdowns, food ordering applications became the main source of revenue generation for restaurants. As offline traffic has decreased and restaurants are generally not very “digitally advanced”, the easiest way was to connect the restaurants to the food ordering platforms.

The food delivery market

According to the data presented by the portal Statista.com The global online food ordering market was $ 2017 billion in 76,2. In 2020, the value of this market was estimated at $ 136,4 billion. In 2020 alone, the market grew by approximately 27% y / y. The market segment was "helped" by COVID-19, which forced faster diversification of revenues into the online channel. The online ordering market itself has been divided into platforms and applications (and websites). According to Statista.com, the platforms accounted for less than $ 71 billion in 2020. Growth in this segment was 32% y / y. In turn, sales classified as restaurant-to-customer accounted for $ 65,7 billion (+ 22,5% y / y).

The largest online food delivery market is the People's Republic of Chinawhich in 2020 increased by 28% y / y to the level of $ 51,5 billion. The size of the market is partly due to the size of the population, its digitization and population density. These three factors favor the development of this market in the Middle Kingdom. The second largest is the United States, whose food delivery market amounted to $ 2020 billion in 28,4 (+ 30% y / y). The next largest markets are: Indian ($ 11,6 billion), British ($ 6,5 billion) and Brazilian ($ 6,5 billion). Due to the low penetration of this market segment, the Indian, Brazilian and South-East Asian markets have particularly great potential.

Industry economics

Despite the rapid development of the online food delivery market, there is a murderous struggle for survival. The earlier the market is in the growth phase, the more aggressive the platforms that want to get the most traffic from the client. This is due to the fact that even access to all restaurants in the city does not guarantee success if no one wants to order food on the platform. For this reason, platforms are competing with offering shipping discounts to "accustom" customers to using one platform. At the same time, "discount feeding" must not be too frequent, as it will accustom customers to constant discounts. On the other hand, the cost of changing the ordering platform ("Switching cost") is extremely low, so platforms must constantly monitor competition behavior in order not to lose market share.

Companies from this segment try to analyze their advertising campaigns to obtain the best LTV to CAC ratio. LTV is different Lifetime Value, determines how much the company is able to "generate" from a given cohort (group) of clients during its activity on the platform. CAC is the cost of customer acquisition, which determines how much the company had to spend on acquiring a given cohort of customers. The ideal cohort has a very high retention and increases the frequency of purchases. The higher the LTV to CAC is, the more profitable it is to "grow" as quickly as possible. Even at the expense of current financial results.

Delivery models and "dark kitchen"

It should also be remembered that the food delivery platforms must organize the transport of products to the customer. There are two delivery models: 1P and 3P. 1P is a pickup by a platform that employs couriers and pays them for the transport. 3P it is a "dropping" of transport outside (eg performed by a restaurant). The 1P model is used more and more often to "relieve" the restaurant. In the case of 1P, platforms must provide attractive rates to find employees who want to earn some extra money or work as a supplier. At the same time, the company wants to optimize deliveries as much as possible (shortening the delivery time and reducing the waiting period for the next order). It is difficult, especially in periods of peak demand for courier services (e.g. Friday evening). 

Another offer that the platforms have is the service "Dark kitchen" (cloud kitchen) is a common space where many restaurants operate, which focuses only on handling online or telephone orders. This allows you to reduce rental costs. Another advantage is the faster delivery times, as such kitchens are often built close to places with increased population density. Such solutions are offered by, among others Deliveroo or Uber.

How to invest in Food Delivery?

The dynamic development of this market segment meant that companies operating in this industry had no problems finding sources of financing. Many of them chose financing through Private Equity or Venture Capital funds. However, many popular brands decided to debut on the stock exchange. As a result, an individual investor who believes in the bright future of the industry can invest in individual companies. Below are selected companies from the Food Delivery industry.

Where to invest in stocks

Below we present a list of offers from selected brokers offering both shares and CFDs on shares and ETFs from various parts of the world.

For example on XTB Today, we can find over 3500 equity instruments and 400 ETFs, a Saxo Bank over 19 companies and 000 ETF funds.

Broker
End	Poland	Denmark	Cyprus *
Number of exchanges on offer	16 exchanges	37 exchanges	24 exchanges
Number of shares in the offer	approx. 3500 - shares circa 2000 - CFDs on shares	19 - shares 8 - CFDs on shares	approx. 3 - CFD on shares
The amount of ETF on offer	approx. 400 - ETF approx. 170 - CFD on ETF	3000 - ETF 675 - CFD on ETF	approx. 100 - CFD on ETF
Commission	0% commission up to EUR 100 turnover / month	according to the price list	Spread depends on the instrument
Min. Deposit	PLN 0 (recommended min. PLN 2000 or USD 500, EUR)	0 PLN / 0 EUR / 0 USD	PLN 500
Platform	xStation	SaxoTrader Pro Saxo Trader Go	Plus500 platform
	REVIEW	REVIEW	REVIEW
	CREATE AN ACCOUNT	CREATE AN ACCOUNT	CREATE AN ACCOUNT

* PLUS500 CY offer

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. From 72% to 89% of retail investor accounts record monetary losses as a result of trading CFDs. Think about whether you understand how CFDs work and whether you can afford the high risk of losing your money.

Just Eat TakeAway

It is a Dutch company that operates in 23 countries on 5 continents. In Poland, the company is known as the Pyszne.pl application. The form was created as a result of the merger of the Dutch company Takeaway.com with the company Just Eat founded in Denmark. The platform includes over 244 restaurants. The company boasts that it has 000 million active customers. This represents a penetration of 60% as the target number of customers (over 13 years) in these 15 markets is 23 million. In 450, the company could boast 2020 million orders and GMV of € 588 billion. The company is a leader in countries such as Great Britain, Germany and the Netherlands. It should be added that  the company is in the merger phase with the American company GrubHub, which is ranked 3rd on the American market. Just Eat Takeaway also owns a minority stake (33%) in ifood, a leader in the Brazilian market. The main shareholder is Prosus. The capitalization of Just Eat TakeAway as at April 9th ​​was € 12,4 billion.

Just Eat TakeAway stock chart, interval D1. Source: xNUMX XTB.

delivery hero

It is a German company that operates in over 40 markets around the world. The company is the largest food ordering platform in the world (outside of China). There are over 500 restaurants on their platforms. In 000, the company became one of the components DAX 30 index. The company focuses on development in developing markets and key Asian markets (including Japan and South Korea). The brand portfolio includes, among others foodpanda (e.g. Japan, Thailand, Bangladesh, Pakistan, Malaysia, Romania, Bulgaria), Talabat (e.g. Egypt, Kuwait, UAE, Saudi Arabia) or PedidosYa (e.g. Chile, Bolivia, Argentina, Uruguay) ). In 2020, the company processed 1 million transactions and generated € 305 million GMV. Delivery Hero also plans to merge with the Korean company Woowa, which operates in South Korea, Vietnam and Japan. The deal is expected to close for $ 12bn. The Korean company boasted a GMV of € 362 million in 5,7.

Delivery Hero stock chart, D1 interval. Source: xNUMX XTB.

Uber Technologies/Uber Eats

It is an American company that operates in both the passenger transport (Uber) and food (Uber Eats) markets. In the passenger transport market, it has a dominant position in North America, Western Europe and Latin America. Uber also has minority interests in businesses in Russia (35% Yandex.Taxi) and Asia (Grab and Didi). On the food delivery market, Uber has a leading position on the American market (No. 2 in the US), Australia, Japan, France and Mexico. The company also has a minority stake in the Indian company Zomato (10%). At the end of 2020, Uber Eats announced plans to take over the American competitor (Postmates) for about $ 2,65 billion.

Uber stock chart, D1 interval. Source: xNUMX XTB.

Doordash

It is the American leader in the food delivery market. The company boasts that there are 390 restaurants on the company's platform. DoorDash also has 000 million active users. In just two years, the company from the 18rd position with a 3% market share has become a leader with a 17% share. During the three quarters of 50, transactions worth $ 2020 billion (GOV - Gross Order Value) were made on the DoorDash platform. The company made its debut in December 8, selling 2020 million shares at $ 33 apiece. In addition to delivery services, the company also offers websites for restaurants that are directly linked to the DoorDash platform.

DoorDash stock chart, interval H1. Source: xNUMX XTB.

Deliveroo

It is a company that operates in the UK food delivery market. It was founded in 2013 in London. Deliveroo works, among others on the British, Dutch, French, Australian or Singaporean market. The company made its debut on the London Stock Exchange in March 2021. It is among the minority shareholders Amazon.

Company Food delivery - Summary

The food delivery industry has developed very dynamically in recent years. COVID-19 has further accelerated the opening of restaurants to the online market. At the same time, many customers who were acquired in 2020 may remain loyal users of the platforms in the following years. The great potential of this market forces platforms to fight hard for their market position. As a result, forms of the food delivery industry must spend a significant part of their revenues on gaining traffic on the platform and maintaining the highest possible retention of previously acquired customers. As a result, despite high commissions (take rate varies from 10-30% depending on the market), most companies in this industry generate operating losses. As a result, the faster companies want to grow, the more money they need for development. The investor must be aware that in the next few years there may be issues of shares or convertible bonds that are to help companies in further dynamic development.

In recent years, a consolidation trend has started, created by large, transnational corporations specializing in food delivery. Such mergers allow to generate synergy and better allocate capital (mature cash-generating markets will redirect funds to growth in more promising markets). At the same time, increasing competition forces companies to expand their offer with the supply of supermarket products, medicines or alcohol. It should be expected that in the coming years the platform market will be more and more difficult for new entrants. As a result, there will be a few major platforms in each market that will take over most of the market. This will apply to both developed and developing markets.