2020 has given out varying challenges to businesses of all shapes and sizes because of COVID-related lockdowns and social distancing. Businesses have brushed aside wealth creation and corporate wealth purely to survive.
“Business opportunities are like buses, there’s always another one coming” – Richard Branson
Deliveroo, a food delivery service, saw an opportunity to grow during the lockdown as restaurants were forced to close to the public. One of the main aspects to creating wealth in an extremely hostile industry is being able to adapt and invest in positive spread units. A great example of this started in 2018 when Deliveroo launched a nationwide TV campaign, re-running it during April this year, to reassure customers that, by using Deliveroo’s services, they can still eat from their favourite restaurants within the comfort of their own homes. Although not yet shown on the balance sheet for this year it was reported, in 2018, that the company spent £10m on advertising (Ram & Hodgson, 2018). Deliveroo have added 46,000 new restaurants to their range in 2020 (Bradshaw, 2020) allowing customers to have greater choice and, hopefully, attracting new customers from rivals such JustEat and UberEats.
Deliveroo have recently teamed up with supermarkets such as Waitrose, Sainsburys and Aldi (Nott, 2020) helping them with their deliveries. This is a great method of diversification by Deliveroo and will aid them in gaining a competitive advantage over their rivals.
Is Deliveroo’s wealth creation diminishing or has COVID helped resurrect them?
Deliveroo’s most recent accounts show that, despite increasing revenue by 62% in 2019 to £771.8m, their losses ballooned to £317.7m (Deliveroo, 2020). These losses appear worrying but Deliveroo’s CEO, Will Shu, insisted all is well as they had an agreement with Amazon in the pipeline. The company stated they were operating at a profit in the 2nd and 3rd quarters of 2020 (COVID era) and were also now profitable in 11 of the 12 markets in which they trade (The Irish Times, 2020). Deliveroo are now valued in excess of £2bn, making them one of, if not the hottest, recent start-ups in the UK. As previously mentioned, Deliveroo were in a spot of bother with losses being at record highs, but they were bailed out by an injection of capital from Amazon with CEO, Jeff Bezos, now holding a 16% stake in Deliveroo. His £575m investment was brought about to provide some cover for their losses (Shead, 2019). Generally investors are more intrigued by cash flow positions rather than profits, which is why Deliveroo made it clear in their 2019 end of year report in that it had £229.8m in cash and equivalents. Thankfully, the Competition & Markets Authority approved of this move provided Amazon do not claim any more stakes in Deliveroo.
Great as it is to have one of the world’s powerhouses onboard, Deliveroo have still got some tough questions to face if they want to maximise profit in the long term. The fact that Deliveroo have made such devastating losses is worrying in such a hostile market, with restaurants complaining about the commission Deliveroo are charging to deliver for them. Takeaway restaurant Texas Joe’s, based in London, received an email from Deliveroo informing them that they were raising the already high commission rate from 25% to 35% (Bradshaw, 2020). This was not taken well by the CEO of Texas Joe’s and he immediately began to delve into the idea of experimenting with UberEats in what he described as a “means of survival”. He further went on to say that Deliveroo’s business model is fundamentally flawed. It isn’t the first time that restaurants have commented on high commission rates and this is surely one of the leading factors to Deliveroo’s increasing losses pre-COVID. Restaurants are still having to pay for overheads and materials in the struggling hospitality sector. Crushing commission rates by delivery businesses is wholly unsustainable for restaurants. I feel an intervention must be made to put a halt to this and to help the restaurants in their profit maximisation.
Has the onset of COVID bringing a slight increase to food deliveries merely helped to prolong Deliveroo’s existence in the market, or can they use this as a steppingstone to wipe their losses in future years? Deliveroo have grown rapidly and have been successful in their 7 years of existence, but they must now adapt if they want to compete and dominate their opposition.
Reference List
Bradshaw, T. (2020, December 21). Deliveroo’s losses soared before its pandemic recovery . Retrieved from Financial Times: https://www.ft.com/content/a882d2dc-fa43-4d98-a42e-c7270ddf9b44
Deliveroo. (2020, December 23). DELIVEROO REPORTS STRONG GROWTH IN 2020 . Retrieved from Deliveroo: https://uk.deliveroo.news/news/deliveroo-growth-accounts-2019.html#:~:text=Deliveroo%20invested%20heavily%20in%202019,new%20towns%20and%20cities%20worldwide.&text=In%202019%2C%20investment%20saw%20revenue,319.9m%20due%20to%20investment.
Nott, G. (2020, August 28). Waitrose partners with Deliveroo for delivery trial . Retrieved from The Grocer: https://www.thegrocer.co.uk/waitrose/waitrose-partners-with-deliveroo-for-delivery-trial/647843.article#:~:text=Waitrose%20is%20partnering%20with%20Deliveroo,own%2Dlabel%20and%20branded%20groceries.&text=The%20supermarket%20said%20the%20tie,within%20a%20t
Ram, A., & Hodgson, C. (2018, October 1). Deliveroo losses widen as food delivery app invests in expansion . Retrieved from Financial Times: https://www.ft.com/content/c50d0766-c565-11e8-bc21-54264d1c4647
Shead, S. (2019, May 17). Amazon Leads $575 Million Investment Into Food Delivery Startup Deliveroo . Retrieved from Forbes: https://www.forbes.com/sites/samshead/2019/05/17/amazon-leads-575-million-investment-into-food-delivery-startup-deliveroo/?sh=3d6d5a0a618c
The Irish Times. (2020, December 21). Deliveroo’s losses soared before recovery due to pandemic . Retrieved from The Irish Times: https://www.irishtimes.com/business/retail-and-services/deliveroo-s-losses-soared-before-recovery-due-to-pandemic-1.4443299#:~:text=This%20year%20Deliveroo%20has%20said,it%20was%20still%20losing%20money.
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