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Deliveroo could cannibalise food and drink offering, say analysts

Published Dec 08, 2023 11:14 Updated Dec 08, 2023 11:40
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© Reuters Deliveroo could cannibalise food and drink offering, say analysts
 
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Proactive Investors - Deliveroo Holdings PLC (LON:ROO) has broadened its market proposition by expanding into retail and grocery deliveries, but in doing so could ‘dilute’ its profits, according to some analysts.

Deliveroo’s focus on adding new verticals grocery and retail to its platform, following its recent investor day, could dilute its gross margin, according to analysts at Shore Capital.

They said in a research note that customer fees and price integrity are top-of-mind for customers ordering through Deliveroo’s traditional restaurant stream, which represents approximately 80% of total order volume.

Analysts suggest that retail and grocery will act as a ‘further pull’ on investment at Deliveroo, prolonging the runway for the group to improve its position on fees in the traditional food and drink vertical.

They raised concerns that by diversifying into other market offerings, Deliveroo may struggle to narrow the average fee gap with rival Just Eat.

Doing so would be instrumental for Shore Capital analysts to have confidence in the double-digit volume of growth implied in its medium-term ‘mid-teens' gross transaction value (GTV) growth guidance.

They said the food and drink vertical remains critical to meeting the double-digit volume growth implied in medium-term guidance.

Worse unit economics are "more probable over the medium term as industry volumes return and the rider supply surplus closes, rather than the fast-expanding margin trajectory the Group’s new guidance suggests", Shore Capital analysts said in a research note this week.

They added that the success of the plan to broaden Deliveroo’s offering will require buy-in from riders.

Read more on Proactive Investors UK

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Deliveroo could cannibalise food and drink offering, say analysts
 

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