Things are looking sweaty at Deliveroo – and not just because of the heatwave. Today, the delivery giant downgraded its sales forecasts as transaction value growth stalled, prompting another fall in its share prices.

In some ways, the slowdown was inevitable. It would be unrealistic to expect Deliveroo to maintain the level of growth seen in lockdowns, when demand for takeaways soared. But this isn’t just a return to normality. Deliveroo is also battling “increased consumer headwinds” due to the cost of living crisis.

The latter point could well spell trouble in the year ahead. As inflation shows no sign of slowing down, squeezed consumers will certainly think twice about ordering a takeaway – and particularly one from Deliveroo, which comes with significant delivery and service fees.

The same problem applies to Deliveroo’s growing grocery arm, which accounted for 8% of sales value in 2021. The hefty mark-up relies on shoppers prioritising convenience over price – a mindset that may become increasingly rare as economic turmoil worsens. And the struggle by ultra-fast delivery operators to turn a profit doesn’t bode well for its latest foray into q-commerce, Deliveroo Hop. 

Which brings us to the crux of the matter: profitability. The impact of the financial crisis on sales isn’t necessarily the most pressing issue for Deliveroo. Even in 2021, when orders rose 73% to over 300 million, losses before tax stood at £298m. In the early days of the pandemic, Deliveroo in effect admitted it would go bust without Amazon’s backing (though admittedly this was more down to the closure of restaurant partners than its business model).

Given this history, investors seem wary of Deliveroo’s money-making potential. Its 2021 debut on the London Stock Exchange was widely regarded as a flop, and shares are down 60% in value so far in 2022.

Deliveroo has repeatedly sought to address these concerns. In its 2021 annual report, CEO Will Shu said forging a “longer-term path to profitability” would be a key focus for the business this year. He set out plans to grow average order values – using minimum order restrictions and upselling – while also “optimising pricing” of its consumer fees, including delivery charges and its Plus subscription programme.

It’s also busy working on alternative revenue streams, such as its growing Editions business and the introduction of an advertising platform targeted at fmcg brands.

But investors are increasingly wary of ‘jam tomorrow’ promises – and the fact remains that, even in the highs of the pandemic, Deliveroo was struggling to make money. Now a sales slowdown is on the cards, it’s even harder to inspire positivity. So Shu can’t just talk about improved profitabililty, he will have to make it a reality. 

Topics