Deliveroo hails ‘more efficient’ marketing spend as losses narrow
More targeted marketing, coupled with growth in its advertising business and on-demand grocery delivery, has pushed Deliveroo further up the path to profitability, its CEO claims.
Deliveroo cut its marketing spend by almost £50m in the second half of 2022, investing just £88m compared to the £134m spent over the same six month period the year prior.
The food delivery firm also narrowed its losses by £36m across the year, posting a total loss of £294.1m. Its revenue grew 14% in 2022 to £1.97bn, while gross transaction value (GTV) rose 9% to £6.85bn.
Deliveroo had previously planned to increase marketing spend in 2022. However, as inflation and the cost of living crisis weakened customer acquisition and retention, the business made the decision in the second quarter to pull back on pursing top-line growth.
On a call with investors today (16 March), CEO Will Shu said “the bar for return on investment [has] quickly gone up”. The business has therefore “refined and optimised” the targeting of its marketing spend to be more “efficient”, which he credits as a driving factor behind its improved profitability.
The food delivery industry has not yet cracked the problem [of] how we consistently deliver a great end-to-end delivery experience each time.
Will Shu, Deliveroo
Deliveroo also reached adjusted EBITDA profitability in the second half of the year, with £6.6m compared to an £84.6m loss the year prior. Shu claimed this is “well ahead of schedule”, with previous guidance suggesting the firm would reach this level in 2023.
He added: “This is a significant step on our path to sustainable cash generation, and we achieved this milestone a year earlier than our guidance by executing our strategy successfully despite headwinds from the market environment.”
Despite lowering its marketing spend, Deliveroo said it had continued to invest in its consumer proposition. Looking ahead, it said there is a “giant opportunity” in providing a better consumer experience as a “point of differentiation” in the market.
“The food delivery industry has not yet cracked the problem [of] how we consistently deliver a great end-to-end delivery experience each time,” Shu explained. “It’s a giant opportunity and one we’re going after in 2023 to make sure we really up our game.”
As it continues to use targeted marketing as a “lever” for growth, the business expects GTV to grow in the low- to mid-single digits in 2023. Adjusted EBITDA is expected to rise to £20m-£50m.
Alternate revenue streams
Shu also said Deliveroo had seen the “first real contribution from our nascent advertising business” last year, after first launching it in 2021. Ad revenue reached £40m for the year, and accounted for 0.6% of GTV in the fourth quarter.
So far this revenue has come “almost entirely” through its sponsored position products for its partner restaurants. The Deliveroo Media and Ecommerce platform, geared towards consumer FMCG brands, has yet to have any significant impact since launching in July.
However, the business expects the platform to become a “more material contributor” in 2023, Shu said, adding there had been “an encouraging start.”
Meanwhile, Deliveroo’s rapid grocery delivery business reached 11% of total GTV in the second half of 2022, up from 9%. The business now delivers from approximately 8,000 partner sites in the UK and Ireland, having expanded its partnerships with Waitrose, Sainsbury’s and Co-op, and launched with Asda.AB InBev credits marketing with driving ‘highest-ever’ volume sales
Expanding its partnership with Co-op has shown “encouraging” results, Shu said. Deliveroo is now up t0 10,000 SKUs through the retailer, and has seen a 5% to 10% increase in basket sizes and a 6% reduction in amended orders.
To provide customers with better value, Deliveroo has introduced in-store price matching on selected items with some of its grocery partners. The first in-store price match campaign with Morrisons delivered a more than 20% increase in order volume, Shu claimed, promising there is “more to come”.
The brand’s pursuit of profitability has not been simple. In November 2022, it decided to exit the Australian and Dutch markets where it determined it could not “reach a sustainable and profitable scale in these markets without considerable financial investment”.
Last month, Shu announced the company was making 9% of its workforce redundant. The company had grown its headcount too fast during the pandemic and was now suffering under multiple economic headwinds, he said.
“Our fixed cost base is too big for our business,” Shu wrote in a statement at the time.
