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Just Eat Takeaway.com NV (LON:JET), like online retailers and cloud software providers, should have been one of the companies to have made the most of pandemic restrictions that were so supportive of its business.
But despite the online takeaway food marketplace company’s number-one position in almost all its markets and three quarter in a row of revenue growth, the shares are little changed form where they were 18 months ago.
As today’s trading update showed, total order numbers in the final quarter of 2020 were up 57% year on year, with delivery orders in the UK rising 387%.
While conditions for the online takeaway food ordering market were supportive because of the coronavirus lockdowns, this is a highly competitive oligopoly where it is up against deep-pocketed Uber Eats and Amazon-backed Deliveroo.
The company is growing revenue fast but it’s not just down to the supportive market, as the Anglo-Dutch group is having to pump a fair whack of cash on marketing, while also investing in growth.
JET said last year that it plans to hire thousands of new couriers as it stepped up a gear with adding deliveries to its Just Eat marketplace offering in the UK, following the success that the Takeaway.com business had on the continent.
Deliveries represented almost a third of orders for the entire Just Eat Takeaway.com group in the fourth quarter and 25% of orders in the UK.
Dan Thomas, senior analyst at research firm Third Bridge, said the strength of the hybrid logistics/marketplace model was demonstrated in Germany and the Netherlands, and the hiring spree in the “indicates that the UK is only becoming even more competitive”.
“An expanded delivery capability should enable Just Eat to bring on fresh inventory to the platform, which had heretofore largely relied on restaurants that could fulfil their own orders,” he said.
“Just Eat looks to be taking the fight to large, dense urban centres where Deliveroo and UberEats have typically enjoyed more dominant market positions.”
As has long been argued and today’s trading update showed perfectly, while the marketplace business is capital-light and high-margin, there are lots of extra costs associated with expanding via delivery is that although 2020 revenue growth is expected to be around 50%, underlying profit margins are only guided to come in at roughly 10%, well down from the 42% in the first half of the year.
“It’s really tough to make food-delivery work on a sustainably profitable basis when you have three scale players in the market,” said Thomas. “Logistics players struggle to drive order density and marketing expenses remain high as platforms try to differentiate themselves.”
Just Eat has little choice in order to survive and is unlikely to change course.
Russ Mould, investment director at AJ Bell, said the trading statement provided a firm signal that management will prioritise market share over profitability for the time being at least.
“Having three big players in this market makes it very difficult to turn a consistent profit. As a consumer it makes little difference to you if your food is brought to the door by Just Eat, Deliveroo or Uber Eats,” he said.
“This means operators are forced to spend lots of cash on marketing and to use incentives like vouchers to try and mark themselves out and secure some level of customer loyalty.”
As Just Eat has agreed to acquire GrubHub in the US, with the deal expected to completed in March or April, further potential consolidation down the road “seems a real possibility” said Mould, though it would seem unlikely to bypass competition concerns.
Thomas added that grocery was another new area of competition for the trio.
“One of the big unknowns for 2021 will be the scale with which consumers adopt grocery”, he said, with all three platforms keen to capitalise on the category’s growth, especially as grocers have struggled to scale their own delivery capabilities.
Either way, with competition so fierce it appears to be good news for consumers who want to just put their feet up and buy everything online.
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