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Deliveroo’s revenues and losses grew rapidly in 2018, demonstrating both the soaring popularity of food delivery services and the financial fragility of these disruptive businesses.
London-based Deliveroo reported today that sales rose to $584 million in 2018, up 72% from $340 million in 2017. But losses also jumped to $284 million, up from $244 million.
The good news for Deliveroo is that the loss margin fell from 71% to 48%. The bad news is that loss is still dizzying and comes amid intensifying competition and some consolidation among rivals with immensely deep pockets.
For the moment, Deliveroo remains optimistic.
“Deliveroo is growing from strength-to-strength and expanding across our markets as more and more people want amazing food delivered straight to their door,” said Deliveroo CEO Will Shu in a statement. “We’re focused on our mission of becoming the definitive food company, and we’ve continued to invest heavily in expansion, technology and new products to meet this ambition.”
Food delivery services have exploded in recent years by offering greater convenience to customers while allowing local restaurants to connect with new markets. But it largely remains unclear whether these can be sustainable businesses for the long run.
That poses a huge risk not only to investors who have pumped billions into these services, but also to the food service industry, which is broadly reorganizing itself to adapt and survive this sweeping transformation. If these delivery companies collapse before they can figure out the economics, then many restaurants will be left in the lurch.
U.S.-based Grubhub has managed to make money for several years, though its profit margin slipped from 14% in 2017 to 8% in 2018. But thanks to massive investments and aggressive pricing, Uber Eats has managed to surpass Grubhub in revenues. Uber Eats is likely losing money, though we don’t know for sure since it’s not broken out in Uber’s financials.
Meanwhile, Netherlands-based Takeaway.com has been busy rolling up competition, including buying Germany’s Delivery Hero last year for $1 billion and then merging this summer with London-based Just Eat in a deal valued at $5.7 billion. The rationale is to slash costs, with the goal of becoming profitable next year.
To fend off this competition, Deliveroo raised $575 million last May in a round led by Amazon, bringing its total raised to a staggering $1.5 billion in six years. That followed reports that Amazon had made repeated attempts to acquire the company. Still, Deliveroo also retreated from the German market this year in the face of cutthroat competition.
For now, Deliveroo said its growth last year was fueled by the addition of a marketplace that allows restaurants with their own delivery drivers to join the platform. Going forward, it’s hoping to expand its presence in the 13 markets where it currently operates. In 2019, Deliveroo has been adding 50 towns in just the U.K. It’s trying to compete for delivery personnel by offering free insurance.
The company is also doubling its investment in technology while launching new B2B services that help restaurants negotiate better prices for ingredients.
As investor tolerance for companies with no clear path to profitability wanes (at least for the moment), how quickly these strategies help Deliveroo narrow its losses could determine whether it can remain an independent company.
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