The removal of pandemic limitations and an increase in the cost of living reduced demand for internet takeout, causing losses at British meal delivery company Deliveroo to soar and revenue growth to halt significantly in the first half of 2022.
In the first half of the year, Deliveroo recorded a pretax loss of £147.3 million ($178 million), an increase of 54% over the same time in 2017. The losses were mostly caused by rising marketing and overhead costs.
The company’s earnings increased 12% to £1 billion. That was significantly slower than the company’s reported revenue growth for the first half of 2021, when revenues increased 82% year over year.
Gross transaction value (GTV), a measure of total platform sales, increased 7% at Deliveroo to £3.6 billion, which is a modest increase compared to last year, when GTV doubled in the first half. The corporation attributed the underwhelming results to “challenging market conditions.”
Deliveroo announced that it is seeking input on its plans to leave the Netherlands, which would be the company’s most recent departure from a significant European market.
The company previously withdrew from Spain in 2018 and Germany in 2019 due to the possibility of significantly stricter gig economy laws in the European Union.
Only 1% of Deliveroo’s GTV in the first half of 2022 came from the Netherlands, according to Deliveroo.
Deliveroo updated their forecast for overall sales growth. The business downgraded its earlier projection of between 15% and 25% to a range of 4% to 12% for GTV growth in 2022 last month.
In response to its findings on Wednesday, Deliveroo’s stock increased by 3%.
Share buyback
“So far in 2022, we have made good progress delivering on our profitability plan, despite increased consumer headwinds and slowing growth during the period,” Will Shu, the CEO of Deliveroo, said in a statement.
“We are confident that in H2 2022 and beyond we will see further gains from actions already taken, as well as benefits from new initiatives.”
Shu further said, “We remain confident in our ability to adapt financially to any further changes in the macroeconomic environment.”
A more extroverted consumer base and rising inflation have both seized the meal delivery sector.
People are dining out more frequently than they are purchasing food online as a result of rising energy and basic goods prices, which have also made consumers more wary of their financial decisions.
On a different Wednesday, Deliveroo announced that it would begin its first-ever stock repurchase program, acquiring shares from investors for up to £75 million. According to Deliveroo, the program’s goal is “to mitigate dilution from share-based compensation plans.”
The business disclosed that Simon Wolfson, the CEO of the Next apparel chain in the United Kingdom, had opted to leave the board.
“After much consideration, and with regret, I believe that the time required to continue in my role at Deliveroo is no longer compatible with my executive and other commitments,” Wolfson said.
In a recent global agreement, Deliveroo welcomed McDonald’s to its platform. Deliveroo is focusing on other on-demand delivery services in the hopes that this will help it weather the storm of a potential recession. Retailers other than food have joined the company, including WH Smith and LloydsPharmacy.
Food delivery has a long history of being a competitive business with narrow margins, making it difficult for any one company to have a big impact. While some companies in the sector benefited from the Covid-19 lockdowns, the business has recently seen growing consolidation as values have fallen due to a decline in the need for such services.
Grubhub’s value was written down by the Anglo-Dutch company Just Eat Takeaway.com last week by $3 billion, or nearly half of the $7.3 billion it originally paid for the company last year. In response to demand from investors to grow its business, the company is considering selling Grubhub among other options.
It follows Amazon’s announcement of an agreement to acquire a stake in Grubhub and give Prime members access to food delivery services. Similar agreements between Amazon and Deliveroo exist in the United Kingdom, Italy, France, and the United Arab Emirates.
