A Grubhub delivery person rides in Manhattan, New York City, U.S., May 9, 2022. REUTERS/Andrew Kelly/File Photo
AMSTERDAM/NEW YORK, July 25 (Reuters) – When food delivery service Grubhub struck a deal with Amazon (AMZN.O) earlier this month, offering Prime customers a year's free delivery, shares in rivals slumped.
The deal, a lifeline for Grubhub that will increase pressure on its competitors, was the latest example of a meal delivery company taking action to revamp its business to cope with an anticipated downturn. read more
The loss-making food delivery sector was one of the big beneficiaries of the COVID-19 pandemic, but that effect has waned as consumers, faced with surging prices, have started to cut back.
Analysts still believe food delivery will ultimately become a money spinner, given customers' love of convenience. But for the moment the sector has to cope with a cost-of-living crunch and companies will be judged on whether they meet margin, not growth, targets.
To that end, firms are reducing costs and exiting unprofitable markets or making tactical moves like Grubhub to cope with the tougher climate.
"It’s a misconception that competition will keep increasing forever," said Fahd Beg, an executive at Prosus (PRX.AS), which has investments in meals companies around the world.
"As the funding frenzy of the last few years dies down, many businesses are looking to rationalise and exit markets where they don’t have a leadership position."
Just Eat Takeaway (TKWY.AS) has hiked restaurant commissions across Europe and cut jobs in France, Uber Eats (UBER.N) has quit Brazil and Britain's Deliveroo (ROO.L), has exited Spain.
"Everyone's scaling back, everyone understands they now need to get to profitability," said Citi analyst Monique Pollard.
Players that are already dominant in one region are best placed to expand their lead, analysts said.
Those include DoorDash (DASH.N) in the United States, Just Eat in Northern Europe, Delivery Hero's Glovo in Southern Europe and iFood in Brazil. These can invest operating profits to strengthen their delivery network and add more restaurants to their platforms.
Companies in a second or third place position will suffer, analysts said.
Under Grubhub's Amazon deal, the company will strengthen its delivery network, building from city strongholds such as New York.
Amazon has a similar deal with Deliveroo, which is a major player in London and Paris.
The number of U.S. restaurant delivery orders dropped 6.3% for the 12 months ending in June to 4.8 billion, the first year-over-year drop the sector has seen since 2016, according to data by The NPD Group/CREST.
Morgan Stanley has said its polling showed spending on restaurants is one of the first places consumers will look to save money during a recession.
"Food delivery also stands out as uniquely at risk … given that this tends to be expensive on a per person basis and likely viewed as indulgent by some consumer groups," they wrote.
The Amazon deal will be a shot in the arm for Grubhub, which Just Eat Takeaway bought for $7.3 billion in 2021 but has now said is up for sale. read more
The influx of new subscribers — about 2 million in July alone, as reported by the Wall Street Journal — will help Grubhub make better use of its existing delivery network, analysts say.
Morningstar analysis estimated that Grubhub had 3 million subscribers at the end of 2021, and it could double that number in the first year of the Amazon deal.
It estimated Amazon's deal with Britain's Deliveroo launched in September 2021 led to a doubling of subscribers from 750,000 to 1.5 million in the first month following the deal.
Amazon Prime has approximately 10 times the number of subscribers in the United States than it does in Britain.
Citi's Pollard said DoorDash remains in a dominant position in the United States, while Uber benefits from a nationwide delivery network in the country.
What the Amazon deal "does for Grubhub is it changes the narrative for them from one where they're losing share to one where they start to regain share, particularly in the short term," she said.
With just two to three players left in each country, those that remain are better placed to protect margins in a downturn.
Deliveroo and Delivery Hero both cut sales forecasts last week. read more
But their shares rallied as they maintained or improved operating profit forecasts.
"Going forward, operating efficiencies will be rewarded and reflected in both public and private market valuations," said Beg of Prosus, in e-mailed answers to Reuters questions.
Leaders in each market are now established and those with a delivery focus "will be able to successfully defend their businesses," he said.
(This story refiles to attribute data in paragraph 17 and fix syntax in paragraph 13)
Our Standards: The Thomson Reuters Trust Principles.
Japan will waive pre-departure COVID-19 tests for vaccinated travellers to the country, but daily caps on entrants will remain in place, Prime Minister Fumio Kishida said on Wednesday.
Reuters, the news and media division of Thomson Reuters, is the world’s largest multimedia news provider, reaching billions of people worldwide every day. Reuters provides business, financial, national and international news to professionals via desktop terminals, the world's media organizations, industry events and directly to consumers.
Build the strongest argument relying on authoritative content, attorney-editor expertise, and industry defining technology.
The most comprehensive solution to manage all your complex and ever-expanding tax and compliance needs.
The industry leader for online information for tax, accounting and finance professionals.
Access unmatched financial data, news and content in a highly-customised workflow experience on desktop, web and mobile.
Browse an unrivalled portfolio of real-time and historical market data and insights from worldwide sources and experts.
Screen for heightened risk individual and entities globally to help uncover hidden risks in business relationships and human networks.
All quotes delayed a minimum of 15 minutes. See here for a complete list of exchanges and delays.
© 2022 Reuters. All rights reserved

source

Shop Sephari