"Eats and does not listen to anyone": food delivery service prospects

«Кушает и никого не слушает»: перспективы сервиса доставки еды

Just Eat Takeaway (NASDAQ: GRUB) - European food delivery platform. After acquiring GrubHub, the company gained a significant presence in the US and a chance to profit in the indefinite future.. But the dynamics in the industry and the labor market play against the company.

What do they make money on

This is a food delivery service from the Netherlands. The company just this year acquired a similar American company GrubHub, therefore, there is some difficulty in calculating that, which half of the company how much revenue does: a unified annual report has not yet been released.

So I decided to do this – take the GrubHub and Just Eat reports for 2020 and submit, what would the combined company look like in terms of the results of 2020 in terms of the geographical section of revenue. Important, that GrubHub had revenue in dollars, and from Just Eat - in euros, therefore everything is calculated in euros at the exchange rate for 31 December 2020 - 1 $ = 0,8185 €. Here's what happened:

  1. USA - 38,22%.
  2. United Kingdom - 18,67%.
  3. Germany - 9,63%.
  4. Canada - 13,26%.
  5. Netherlands - 4,48%.
  6. Others, unnamed countries - 15,74%.

Both companies were unprofitable separately - and remained unprofitable together.

«Кушает и никого не слушает»: перспективы сервиса доставки еды

«Кушает и никого не слушает»: перспективы сервиса доставки еды

Number of restaurants on the Just Eat Takeaway platform, in thousands of pieces

1п2018 209
1п2019 285
1п2020 426
1п2021 588

209

Arguments in favor of the company

Just growth, just promising. If you forget for a while about the chronic unprofitability of this business, then the company is distinguished by high rates of revenue. Even in her reporting, she skillfully juggles numbers and terms.: "Adjusted EBITDA", "High level of customer confidence" and other internal metrics. And thanks to this math, Just Eat, in principle, can successfully pretend to be a promising business., who has room to grow.

The company is favored by the socio-political landscape of the "post-pandemic" era with periodic quarantines, when restaurant visits are drastically reduced and this increases the demand for delivery services.

Investors' interest in this area continues: over the past few years, private investors have invested as much as $ 7 billion in an even crazier idea - 10-minute delivery from supermarkets. That fact, that people are ready to invest large sums even in such projects, where the probability of profit remains illusory, talks about, that, in principle, the delivery sector still has considerable attractiveness in the eyes of investors. In theory, this could contribute to further growth in Just Eat shares..

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As the largest delivery service in the world, Just Eat can still remain attractive for investment, despite the highly questionable future of the business model. P / S u Just Eat is located in the area 4, which is about 4 times less, than its competitors from DoorDash.

Also, a plus can be considered, that Just Eat is the market leader in Europe. This is where the virtues of Just Eat end..

«Кушает и никого не слушает»: перспективы сервиса доставки еды

Just Eat Takeaway Reached Target Audience by Country

Reached target audience from the general population Population of the country from 15 years, million
Netherlands 40% 15
Great Britain 32% 55
Germany 19% 72
Australia 19% 21
Canada 18% 32
USA 12% 270
Estonia 6% 40
Italy 5% 52
Share in these countries as a whole 14% 723

What can get in the way

Sisyphus as Employee of the Month. The company declares, that its delivery is already profitable in Canada and close to profitability in Germany. But it still needs to be checked., it's very likely, that the company considered it all as "adjusted EBITDA" and there is no real profit there.

The food delivery market is extremely competitive, and Just Eat does not show significant superiority over competitors in such an important metric, how is the delivery time of the order. And this is a very important parameter., which attracts customers, - investments in maintaining even the existing level will devour the profit of Just Eat.

Let the company be the leader in Europe, but in the most important American market, it is inferior to DoorDash and Uber.

«Кушает и никого не слушает»: перспективы сервиса доставки еды

«Кушает и никого не слушает»: перспективы сервиса доставки еды

Meanwhile, the labor market in the United States and Great Britain - and these are the main markets for Just Eat - is facing an unfavorable situation for delivery services.: employment and competition for workers is growing. The entire courier business relies on low-wage courier labor. But when companies are better off from employee shortages, competition for an available pool of labor is escalating.

The most qualified couriers can, eg, go to the waiters, where there is a good chance of getting a decent tip. Strictly speaking, the increase in the number of voluntary layoffs in US restaurants does not mean, that soon Just Eat will receive many cheap couriers, and about that, that these people are going to be promoted in the industry more interesting, and the competition for couriers will soon intensify.

«Кушает и никого не слушает»: перспективы сервиса доставки еды

«Кушает и никого не слушает»: перспективы сервиса доставки еды

«Кушает и никого не слушает»: перспективы сервиса доставки еды

Quarantine no longer interferes. If there was a new large-scale quarantine - like in the spring 2020, then a wave of mass layoffs would lead to an improvement in Just Eat's bargaining position: there would be a ready army of potential couriers. But, seems to be, the world has learned to live with coronavirus, not badly damaging the economy: I do not see any signs of mass layoffs yet. By the way, some large municipalities like New York make life difficult for shipping companies and pass laws, aimed at improving the position of couriers, which clearly does not contribute to an increase in the marginality of this sector, unprofitable.

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However, Just Eat and GrubHub Failed to Show Sustainable Profits Even as the Pandemic Was On, when they were practically irreplaceable. Risks are great, that even the combined company Just Eat will not be able to make a profit. Actually, Just Eat says so: “Profit is not a priority, and the main thing is the market share ". But this market, as we figured out above, pretty lame: delivery companies naturally fight over scraps.

As if monopolists. The ghostly odds of Just Eat getting a payback lie in the likelihood, that the company will capture almost the entire food and grocery delivery market in America and Europe and increase prices many times. But the chances of success are frankly small.

Firstly, the company has major competitors: Uber Eats and DoorDash, as well as a bunch of smaller startups. Yes, Just Eat can try to buy them – but it will cost a lot of money, which will have to be taken out of the magician's hat.

Secondly, if Just Eat can become a monopoly and increase prices, another problem will appear: restaurants and consumers do not need high prices.

With consumers, everything is clear - delivery is used everywhere only because, that it is cheap. A significant increase in price devalues the value of this service for many users - in theory, this can lead to a strong drop in revenue., which is unlikely to be compensated for by increasing business margins.

But suppose, price increases will occur. Then other companies will start creating similar startups., who will dump. Therein, that such startups will appear in the event of an increase in prices by the existing leaders of the delivery market, I have little doubt.

On both sides of the Atlantic, private foundations have accumulated a lot of money., which they can invest in the most insane adventures - and then "go into the black", organizing an IPO for these unprofitable startups. Actually, this was the case with DoorDash and Just Eat - once private funds and large investors pumped them up with money and then released them to float on the stock exchange, making money on the sale of their shares. Only new startups will increase revenue through dumping - and Just Eat will lose it. Or Just Eat will have to buy these startups, so as not to lose your market share.

Well, the monopolization of the delivery market by Just Eat may meet with resistance from regulators..

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«Кушает и никого не слушает»: перспективы сервиса доставки еды

«Кушает и никого не слушает»: перспективы сервиса доставки еды

Restaurant hit. There is also a huge problem with the restaurants themselves.. Already a year before the pandemic, delivery was much less profitable for restaurants., than physical dining by consumers. And the pandemic did not make the delivery more profitable - it was just that the marginality of catering as a whole fell.. But rising shipping costs, which was already not very marginal for restaurants, very annoying for many restaurants.

In NYC, eg, restaurants have achieved restrictions on the size of the commission. There's a possibility, that other large municipalities in the world will follow the example of the Big Apple. But even if we assume, that the administrations of large cities will allow Just Eat to raise commissions, it will only increase incentives for restaurants to create their own delivery services.

As mentioned in the GrubHub review, it is cost-effective for restaurants to create their own delivery service provided, that 25-30% of their revenue comes from orders with delivery. Given the situation with the pandemic and the growing share of online orders in the revenue structure of the American catering industry, I would expect in the future a shaft of creating delivery services at restaurants, who still use platforms like Just Eat.

clear, that large chains are adapted to this better than small restaurants. But even in the case of the latter, there are options.: eg, a group of small restaurants can throw on their own delivery service bypassing Just Eat for savings. All catering is maximally motivated to create its delivery platforms by a strong drop in margins as a result of the pandemic.. All of this in general can result in big problems for Just Eat..

«Кушает и никого не слушает»: перспективы сервиса доставки еды

Resume

Just Eat's business model is a race to the bottom with other delivery companies. I do not see a positive outcome of this whole adventure - while the shares of delivery services look like a losing experiment.

If you invest in Just Eat - then only with the expectation, that investors will start to exit the shares at times by the more expensive DoorDash into the shares of the "cheaper" Just Eat. Maybe even, that DoorDash will try to buy Just Eat - but in this case, opposition from antitrust regulators is possible and the deal risks not taking place. On the other hand, such news can cause an increase in Just Eat quotes, albeit not for long.

But in general, the circumstances are against Just Eat: labor costs of workers will rise, and municipalities and competitors will put a spoke in the wheel. So I would start investing in these stocks only after a significant drop - four times like that..

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