Introduction / background:

JustEat Takeaway.com (JET) is one of my riskier bets as I described in my first January post. In short, the thesis was that JET has achieved a dominant position in running a grocery delivery market in many countries (including Germany, UK, Canada etc.), got an extra kick from the Covid-19 bans and will soon start making money, similar to their home market, the Netherlands. Within JET’s business, Germany was clearly the most promising market as it is a large and growing market and they are the only remaining player.

This is supported by the assumption that JET’s main competitors (Uber, Deliveroo, DoorDash) are now public and need to stop burning money. The assumption was also that JET, despite offering its own delivery service, would dominate the marketplace business model in the long term, which is more profitable than using drivers.

Since then, the stock has not performed as well, despite posting very encouraging sales growth numbers that have motivated me to even increase the position from 2% of the portfolio to 3% (at cost).

With the Grubhub deal closed today, I think it’s worth trying to do a quick update.

What has changed

New competitors – it gets crowded

In January I mentioned that the market for grocery delivery services is not so well protected against new entrants (city-by-city approach) and that a Finnish start-up called Wolt has started its work in Germany, currently the largest market for JET . In the meantime, Uber Eats has started operations in Berlin and Door Dash is hiring employees for a European market entry and Delivery Hero announced that it will be returning to Germany with its Foodpanda brand after being sold out to JET two years ago.

However, attacking JET directly will not be that easy. The restaurants on the one hand are clearly keen to have competing platforms to list on as this increases their bargaining power. From the end-consumer perspective, however, it is not that easy to motivate consumers to install yet another app to order meals.

So, as a new competitor, you need to be able to attract customers in other ways than just offering the same thing. Uber is a good example: Uber Eats is automatically offered to all Uber users, and many Uber users could be potential customers for food delivery.

As a result, Uber’s upfront cost is (in theory) much lower than it would be for a competitor with no customer base, and that’s one of the reasons Uber performed relatively well during the pandemic. In the case of Uber, this is also a benefit for the drivers who can do business during normally slow times (noon).

The model “attack of the 10-minute delivery” – Gorillas & Co

Another development that surprised me is the ultra-fast scaling of “10-minute delivery apps” such as Gorillas, Flink, the Turkish company Getir or the US version called “GoPuff” (which would mean something VERY different in German ).

The business model of these companies is quite simple, but interesting: They set up depots with a limited selection of mostly “convenience food” items throughout the city and then quickly deliver them to their customers via a fleet of e-bike riders. The products as such are bought “wholesalers”, ie directly from the manufacturers.

These companies are currently one of the biggest “hypes” in the VC scene. Gorillas, for example, is a company that is only one year old at the time of writing and has achieved unicorn status after 8 months, which is very remarkable or “unprecedented” in Germany. 3 months later, rumor has it that they will start the next round with $ 6 billion

GoPuff recently raised more than $ 1bn on a $ 9bn valuation and Getir just raised $ 7.5bn which is very remarkable for a Turkish company.

Of course there is a lot of hot air in the industry, but the business model itself is interesting

  • Since they are wholesale shopping there is no crowding out when compared to a service picking things from local stores
  • Shopping wholesale and renting small space in locations not suitable for retail is much cheaper than running a store
  • Commissioning is much faster and cheaper than normal food delivery models that require a man to walk around in a real store
  • For many customers, the convenience focus also shifts the price point when comparing their offer not with Aldi, but with the convenience store or, in Germany, with the gas station prices, especially for evening or Sunday deliveries in Germany when only one tank is possible with prices of 200% of a normal grocery store
  • The 10-minute delivery is also a typical 10x product: normal food delivery, at least in Germany, is best done on the same day, but you usually have to order 1 or 2 days in advance.
  • In my home band Munich, they roll through the city on an ultra-fast scale. Since the end of last week, there has been no Lieferando where I live but a 15-minute Gorrilas offer. The prices are currently super competitive at supermarket level
  • Another interesting aspect that gorillas have succeeded in is the fact that they try to convey an “image of cool” to their drivers. From the black clothes to the relatively unique e-bikes, they try to set their riders apart from the rest, even though they already had problems with riders in Berlin. The drivers from nimble or Lieferando look pretty lame compared to the gorillas boys.

Gorillas

It took me a while, but in summary, I believe that the gorillas model could be a game changer from the customer’s point of view, which means that this offer will go viral, ie reach many customers with relatively little effort, as everyone wants to try out this incredible service.

Now, many very clever investors will tell you that it will be very difficult to maintain the business model on a stand-alone basis. I think that’s true, but I think they’re missing one point: if you have a lot of customers, good logistics and a fleet of fast cyclists, you can also deliver other things very easily.

And I think the endgame is pretty clear here: Each of these players aims to become the ultimate “on-demand delivery service platform” or “super app” for anything that transports within a relatively dense urban area in a short time can be .

It took me some time to understand, but in my opinion the following is very likely:

  • the new fast delivery platforms will soon become competitors for JET, Uber, Deliveroo, etc. Deliver
  • The offer of delivery is not “temporary”; pure platform play will not be an option
  • there will be consolidation to fewer platforms, each offering very different services

Interestingly, this trend has already occurred, especially in less developed markets. Delivery Hero, for example, sold its Eastern European operations to Glovo, one of the early European providers of fast deliveries.

As mentioned, Delivery Hero itself is attacking in Germany with Foodpanda, which is not a restaurant delivery platform, but a 7-minute gorillas clone. It’s pretty clear that this isn’t their endgame in Germany, but an attempt to build a customer base quickly. And in Asia, the super apps like Grab or Go-Jek have left little room for “single-use” competitors since their inception.

In honor of Jitse Groen, I think he understands this a lot better than I do and has already announced that he will be implementing a grocery delivery service in Germany and will deliver in 20-30 minutes. At first I wondered why JET raised a whopping EUR 1.1 billion through a convertible bond in February, but now I understand the motivation a little better …

Whether that is enough to defeat gorillas & Co. remains to be seen. A big wild card in my opinion what amazon will do. So far they have not tried to update their “Fresh” offer. In my opinion, they will either close it down or massively upgrade it. In Germany they have just announced they will switch to a 3 hour service, which in my opinion will most likely not be sustainable.

Summary:

Overall, I think my first analysis was not complete. I clearly underestimated the “new” competition and the assumption that JET will be able to operate a high-margin platform model without delivery in the future is unrealistic.

They will be forced to offer delivery options and a competitive convenience proposition or else they will open the door to some very aggressive new competitors.

I also wonder how many bike couriers there actually are and when wage increases will consume margins even further. Although I haven’t completely given up on JET yet, I will actually reverse my position increase and scale the position back to the starting size (in number of shares) in the coming days.

The status for the remaining position is now is “Must be very careful”… ..

PS: If any of the readers have access to a pitch deck from Gorillas or Getir, please send me an email. I would like to know what they are accepting as CAC and what their margins are.

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