Deliveroo part 6.b - reply to comment (common pushback)
Deliveroo part 6.b - reply to comment (common pushback)
White label killed the delivery star
RE: Anonymous comment
Thanks for posting - appreciate it. Cool topic.
For me, it is interesting that we don't see a big growth trend for Nandos app downloads/usage though vs. delivery platforms. If your hypothesis was right, we would expect a big growth here, no? They have had an app since early 2017. In fact, Nando's app usage has declined a lot over the last 6 months - active users have halved since Aug-20 (400k) vs. Feb-21 (200k) .. It has good penetration I agree - but Nando's is the strongest brand out there in the UK market, with a decent app, surely it would be growing rapidly based off all these tailwinds you mention? Might be worth reviewing AppAnnie data on this
On related point, having read a few of your reports, you might want to be careful on what market share data you rely on. Google trends is not a good source (only web so just a proxy for web SEO and adwords budget) - it will always be massively overweight for incumbent players e.g. JET has strong web, but poor app UX. I would look to triangulate your sources a bit more e.g. AppAnnie (for App data), SimilarWeb (for web traffic data), Card Transaction data when available (JET actually use in the UK, which is great, but data panels can be very biased in these data sets), ...
Well, if you think about it, 200k active users is a lot. If each of these users were to order once per month, that amounts to 200k orders per month. With some back of the napkin calculation, 200k order is easily >25% of Nando’s UK total monthly orders. Also, remember that 200k does not include demands from the website which I bet has more orders, given their ads are directing people to it (order from nandos.co.uk). If we assume both channels have the same volume of orders, we can easily bridge to Nando’s having >50% of their orders from their own channels. And, guess what? Nando’s hasn’t really offered anything too compelling to drive consumers to use its app (so far only loyalty program). All these demands are simply driven from “order from our website” ads. Now, what would happen if Nando’s gears up and turns aggressive in acquiring customers?
In fact, I just saw the news of $SHAK partnering with $UBER Eats for white label delivery, which further reinforces my point that large chains will aim to control the customer relationship. Here are some quotes from the news:
“Customers who order in Shake Shack’s app will be able to track their order in real time and will pay either a 99-cent flat delivery fee or receive free delivery for orders over $35 — competitive pricing in a part of the industry known for high fees.”
Note that it costs $4.50 on the Uber Eats platform“Shake Shack is testing a 5% upcharge on third-party delivery, which will make in-app ordering the best value for customers. Through the end of this month, it is offering free fries with orders of more than $15 placed on the Shack App”
Apart from the news, $SHAK has also just rolled out its Korean-Inspired Menu (my fiancée will love this) that is not on $DASH app. All in all, $SHAK is literally a live example of my thesis being proven right, and Nando’s will become $SHAK eventually.
Now think about it, why would $UBER allow this? Simple, $UBER has no choice. It’s either they suck it up and take this deal, or lose it to another player. So if $SHAK can do this, why can’t Nandos?
Below are some other snips that another investor sent me. A meal from Burger King US app for the $12.99 family combo and 2 vanilla iced coffee costs $20.50 before tips.
But the same meal from $DASH costs $27.41, literally$7 more and doesn’t have the vanilla iced coffee he wanted.
This makes me wonder, how much of Burger King’s orders are coming through digital. I bet the mix is trending upwards nicely.
Another plausible reason why Nando’s hasn’t been aggressive could be there is an agreement between Nando’s and Deliveroo, to not be aggressive in directing traffic to its own app, for now. I guess my point here and in my previous posts is that -- Nando’s have the ability to control their own ecosystem and Deliveroo is in the way.
Also, I don’t think using the data point from Aug 20 is a good starting point. Nando’s was aggressive with its marketing — giving 50% off to walk-in customers as a part of a government drive to support the restaurant industry. In turn, customers must download the app and scan a QR code to enjoy the discount (this is a perfect reason for consumers to download the app). I’m sure this drive has bumped up the numbers for August 20.
I do agree with you on your latter point, however, we do have Deliveroo data from the prospectus. Using those data, we know $TKWY is ~2.3x the order size of Deliveroo in the UK (after adjusting for grocery and Ireland orders), and roughly 2.6x in GP (note this is when $TKWY is investing aggressively to build out its logistics network and zero delivery fee). If you have read my previous articles, you would notice Deliveroo is a cash incinerator. To match $TKWY aggressive strategy (free delivery fee), it has to burn >£500m/year, and would still lose market share because $TKWY is now the platform that consumers will go to ($TKWY base of restaurant listings will continue to occupy a larger % of total restaurants, and eventually all of them). Granted, London would be a battleground for an extended period of time. But outside of London where there’s a very high mix of marketplace restaurants, I simply don’t see any viable path for Deliveroo to win (once $TKWY offers all the same restaurants that Deliveroo is offering).
To be honest, I’m not super concerned about market share data actually. I’m more concerned by competitive position and strategy. Past market share data is a factor of legacy mismanagement and under-investment by a sleeping management team. Investing in $TKWY today boils down to having a good understanding of $TKWY competitive moat and strategy today, which in my evaluation, is ingenious and very credible.
Links to other related parts:
Deliveroo part 4 - Hell is coming. Gross profit might decline by more than 50%
Deliveroo part 3 - How did Deliveroo managed growth in the past
Links to other related companies: