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Let the games begin

12 May 2021 By Karen Kwok

Food delivery companies have developed a craving for currywurst. Delivery Hero on Wednesday announced plans to start delivering restaurant meals and groceries in Germany, little over two years after it quit the market. Uber Technologies also wants a slice of German takeaway orders. The food fight is good for consumers but ominous for shareholders.

Delivery Hero’s quest for second helpings in Germany looks odd in many ways. To end a cash-draining price war with Takeaway.com, now called Just Eat Takeaway.com, the 28 billion euro group in December 2018 announced it was selling its German unit to its rival for 930 million euros. It seemed a rare outbreak of financially rational behaviour in a global industry which has spent billions of dollars to sign up diners, drivers and restaurants.

Nor does Delivery Hero’s homecoming sound appetising financially. The company led by Niklas Oestberg didn’t disclose the cost of the relaunch, other than to say that it will fund the outlay from this year’s budget, which is about 550 million euros. It also promised to spend more rationally on marketing and vouchers than in the past. But it won’t be alone. Uber said in April it will enter the German market, and grocery delivery startups like Getir and Gorillas are raising money from deep-pocketed investors. That means Oestberg faces a fight for consumers’ attention.

Granted, the pandemic has jolted more Germans into ordering food at home. Just Eat Takeaway delivered 39 million orders in the country in the first quarter of this year, nearly four times as many as in the same period of 2019. The company led by Jitse Groen generated 374 million euros of revenue in Germany last year and earned 125 million euros in adjusted EBITDA – a juicy 33% margin. And restaurants that allow online delivery via apps only account of 4% of the total market, according to data from UBS.

Profitability may be in short supply with two big new players jostling for a share of the feast, though. Groen on Wednesday fought back by announcing that his company would start delivering groceries in Germany at no extra gross profit. Little wonder that investors knocked 3% off the market value of both Just Eat Takeaway and Delivery Hero, which still owns 10% of its rival. When food delivery companies fight, investors tend to go hungry.

 

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