Food delivery apps rack up €18.5bn in losses in fierce battle for diners

Leading online food delivery groups in Europe and the US have racked up more than $20 billion (€18.5 billion) in combined operating losses since they went public, after a fierce battle for market share.

Shares in Deliveroo, Just Eat Takeaway, Delivery Hero and DoorDash – the four largest standalone, publicly listed food-delivery businesses in the US and Europe – are all trading well below their pandemic-era peaks as investors scrutinise their business models.

Following a period of pandemic lockdown-fuelled growth, the four companies are now contending with a tougher macroeconomic environment that has hit consumers.

As they make a renewed push to demonstrate profitability to investors, their cumulative annual operating losses have now hit $20.3 billion, calculations by the Financial Times and industry analyst theDelivery.World found.

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The figure covers the seven years since Deliveroo, Delivery Hero and DoorDash went public and after Just Eat Takeaway was created following a merger in 2020. It includes substantial writedowns related to acquisitions and stock-based compensation.

“Investors’ willingness to fund losses has changed” and they now want food delivery businesses to “demonstrate sustainable, profitable growth” after a rise in interest rates, said UBS analyst Jo Barnet-Lamb.

Rival Uber does not break out the profitability of its Eats business but marked its first full year of operating profitability at a group level in 2023 following a concerted push to boost margins, a moment the company hailed as an “inflection point”.

For years, venture capital groups poured money into so-called “gig economy” companies that subsidised food deliveries to lure customers with low prices and win market share. However, investors have switched their focus to profitability as interest rates have risen, even as the operating costs incurred by the companies, including for marketing, remain high.

The sector must also contend with enduring scrutiny from regulators and labour groups over workers’ rights. If couriers were paid higher wages, sceptics have argued, consumers would never be willing to pay for the true cost of food delivery.

Nevertheless, stock market analysts are becoming more optimistic that the companies can improve financials. In April, the three European players said they expected this year to follow DoorDash in becoming free cash flow positive on an annual basis.

The focus on free cash flow follows a long-standing emphasis among companies in the sector on an alternative measure of profits – adjusted earnings before interest, tax, depreciation and amortisation – that strips out a range of costs such as legal provisions.

But many people “don’t see [adjusted earnings metrics] as a true level of profitability of the underlying business”, said Joseph McNamara, an analyst at Citi.

Operating losses offer “the best standardised view across all companies” that minimised adjustments and other non-cash and non-operational impacts, said Amanda Benincasa Arena, a partner at management consulting firm Aon.

Whether the companies could show they were generating more cash than they were spending was the next big “litmus test”, Mr McNamara added, now that the stage of “growth at all costs” was over.

Giles Thorne, an analyst at Jefferies, noted consumers had continued to use the services in recent years “despite having less money and despite being charged more” – because of fewer discounts and higher inflation – which he said supported the sector’s long-term prospects.

While the online food delivery sector was boosted by the impact of the pandemic, sales growth rates have dropped in the years since. The groups have sought to develop new revenue streams to help accelerate growth, such as grocery delivery and higher-margin advertising businesses.

Uber has credited the broadening range of services that it offers with helping boost overall sales, increase user numbers and improve economies of scale.

The maturing industry is also witnessing a period of consolidation, with some players exiting certain markets and others looking to double down in locations they believe they can dominate.

US-focused DoorDash previously told the FT that it was looking to push into new markets, while Delivery Hero announced in May it planned to sell its Taiwan business to Uber in order to “focus our resources” on other places. In January, the German group also sold its minority stake in London-listed Deliveroo.

Historic deals have also hit some of the four companies’ bottom lines, however, with a sharp fall in industry valuations leading to writedowns.

The extent of Just Eat Takeaway’s losses in 2022 and 2023 were driven in part by a total of $6.5 billion in writedowns in the value of businesses it had acquired, with impairments mostly related to Grubhub, which it has struggled to offload since 2022, and Just Eat. Delivery Hero has also reported substantial recent writedowns totalling about $1.7 billion in 2022 and 2023.

Impairments could indicate an acquisition or merger was not “panning out” as hoped, said Aon’s Ms Benincasa Arena. Consistent writedowns could mean a company was “entering into incorrect markets via acquisition or that they aren’t executing operations correctly once in these markets”, she said.

Expenses related to employee share awards have also hit operating profits, with DoorDash reporting more than $1 billion in such expenses in 2023.

Deliveroo said: “We continue to make strong progress against our strategic priorities and remain confident in our ability to deliver profitable growth.”

DoorDash said it had “invested billions” to help merchants “build successful businesses”, adding the company expected to deliver “[generally accepted accounting principles] profitability over time”.

Emmanuel Thomassin, chief financial officer at Delivery Hero, said operating losses included “items which are not considered as operational relevant to measure the economic development of the company”. The company is more focused on other metrics including free cash flow, he added.

Just Eat Takeaway said: “We’re pleased to have made significant improvements in our financial performance in all our segments as well as returning to free cash flow positive in 2023.”

Following the initial publication of this story, JET said its operating losses over recent years “were mainly driven by impairment expenses related to intangible assets following equity funded acquisitions” and “bear no relation to the actual profitability of our operations over the past years”. The company said it instead preferred to gauge its profitability on adjusted Ebitda. – Copyright The Financial Times Limited 2024

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