Takeaway.com and Just Eat agree food delivery tie-up

The merger of Takeaway.com and Just Eat is set to create the largest online food delivery business outside China, surpassing rival Uber Eats, as executives predict a rush of dealmaking in the fast-growing sector. 

The two European companies agreed a deal on Monday that valued London-based Just Eat’s equity at about £5bn or 731p a share. The combined group will be worth more than €10bn, at the two companies’ current market values. 

The deal is the latest sign that M&A is accelerating in the food delivery sector, as companies push for ever greater scale.

Just Eat bought out Hungryhouse for £200m last year, while Takeaway.com acquired Delivery Hero’s German business for €930m in December.

“This is the beginning of the long talked about consolidation in the sector,” said Mike Evans, chairman of Just Eat, who will hold the same role at the new company. 

The two groups together handled 355m orders last year, with consumers spending a total of €7.3bn ($8.2bn) across the 23 countries in which they operate.

Measured by gross merchandise value, the combined Just Eat Takeaway.com outstripped Uber Eats’ $7.9bn 2018 total and was also ahead of US-based peers Grubhub and DoorDash last year. Only China’s Meituan is larger. 

Scale is vital to withstanding what Takeaway.com chief executive Jitse Groen, who will lead the new company, called “unprecedented competition”. He said there may be “further opportunity for strategic M&A” using the new group’s increased resources. 

“We at Takeaway.com have witnessed the competitiveness of this industry”, Mr Groen, who founded the business almost 20 years ago, told investors on a conference call on Monday. “Many of our competitors have gone bankrupt. This is an inherently difficult industry that requires a thorough understanding of how to make money.”

That was illustrated just last week when both companies reported a hit to profits, as they pump investment into new logistics operations to take on rivals such as Amazon-backed Deliveroo and Uber Eats. 

Just Eat saw its pre-tax profit fall by 98 per cent in the first half of the year to £800,000, even as revenues jumped 30 per cent to £464.5m. Takeaway.com, meanwhile, increased its revenues 70 per cent to €179.4m, but its loss before tax almost doubled to €23m.

So-called “marketplace” businesses such as Just Eat, Takeaway.com and Grubhub rely on restaurants to deliver to customers, and have typically enjoyed higher margins than the businesses that run costly in-house delivery services, such as Deliveroo and Uber Eats.

But Just Eat and Takeaway “are being pressured into moving into delivery” by customer expectations, said Peter Backman, an independent food industry analyst. 

Today, only 5 per cent of Takeaway.com orders are delivered by its own “Scoober” couriers. Given the challenging economics, Mr Groen is happy to keep it that way. It is “highly unlikely” that companies that built their businesses on their own in-house delivery operations “will ever become profitable” he said.

He said that Just Eat Takeaway.com, unlike its newer rivals, will be able to draw on “profit pools” in more mature markets, such as the UK and Netherlands, to fuel expansion in under-exploited areas such as Germany and Poland. 

Mr Backman agreed that delivery was a “hugely inefficient business”. “Marrying that to a super-high valuation of a tech company seems nuts to me,” he said.

Backers of Deliveroo and Uber Eats argue that their logistics platforms bring online both high-end restaurants and fast-food operators such as McDonald’s that were not available for delivery before.

And while Just Eat and Takeaway inch into deliveries, Deliveroo and Uber Eats are responding by expanding into their rivals’ traditional business, too. Deliveroo’s Marketplace+, which launched last year, allows restaurants to fulfil orders using either their own delivery fleet or the company’s courier network.

That is allowing Deliveroo to expand out of city centres into the suburbs in countries such as the UK, France, Spain and Italy, which the company said it was “doing rapidly this year”. 

“As more restaurants become available on the platform, increasing selection, this will attract more customers, resulting in increased sales for Deliveroo and all the restaurants we work with,” Deliveroo said. 

Uber Eats has launched a similar marketplace initiative for the UK, Ireland and the Netherlands. 

When Uber reports its second-quarter results later this week, analysts expect Eats to be a bright spot. Analysts at Cowen estimate Eats gross bookings will reach $3.7bn in the second quarter, more than doubling year on year. 

That could mean that even the combined Just Eat Takeaway.com group does not hold on to its new-found leadership position for long.