Food delivery faces challenges amid spending crunch | WARC | The Feed

Food delivery faces challenges amid spending crunch

The cost-of-living crisis is impacting food delivery companies Deliveroo and Just Eat Takeaway, with consumers looking to reduce discretionary spend at the same time that delivery fees increase and restaurant vendors put up prices.

Why it matters

Both companies, which are publicly listed, are under pressure from investors to show profits after prolonged Covid lockdowns in the UK saw usage of food delivery apps soar. As the economy teeters, ordering restaurant food for home delivery is seen as an easy way to cut back by consumers struggling to make ends meet.

Few people are ordering food for delivery

Despite the Covid-era boom, softening market conditions in 2022 have forced both brands to rationalise. Just Eat confirmed it made an underlying quarterly profit earlier than expected, even as orders fell, but largely due to efforts to cut delivery and operating expenses. Deliveroo, meanwhile, has exited several underperforming European markets.

Just Eat and Deliveroo mostly operate at different ends of the price spectrum, with the former more value-based and the latter premium. To add to pressures, delivery customers often pay a higher premium than the average cost of in-house orders.

Deliveroo pointed to “tough market conditions” as it saw a 1% drop in orders for the quarter year-on-year. Monthly active users are also in decline, down from 7.8m in the second quarter to 7.3m in the third.

Just Eat Takeaway said group orders declined 11% year-on-year, largely due to the end of Covid restrictions on eating out. Jitse Groen, chief executive of Just Eat Takeway, also noted “a more difficult environment for consumers”. In the UK and Ireland, orders fell by 15% and GTV dropped 5%.

Different incomes drive different usage

According to Will Shu, Deliveroo’s chief executive, consumer behaviour is different depending on income: “The more affluent a consumer, the higher the engagement is on the platform,” he said, adding that it's clear some people are "struggling".

But for restaurants aggressively marking up prices, there is a major risk: those vendors are seeing lower conversion rates than others who have taken a more cautious approach. 

Just Eat includes popular value restaurants which are more accessible across income brackets and locations. The company partners with McDonalds and Greggs, for instance – high street mainstays – as well as smaller local vendors.

But concerns remain about delivery fees, according to Just Eat's chief exec. “I think delivery is getting quite expensive in the UK. That’s going to be a bit of a challenge,” Groen said. 

Sources: Financial Times, Investors Chronicle, Independent