Deliveroo outlines marketing plan as it aims to break even next year

Deliveroo has set out a “path to profitability”, including a new advertising revenue stream and plans for more efficient marketing spend, after reporting mounting losses for 2021.

The food delivery brand increased its gross profit by 43% to £497m in its last full financial year. However, Adjusted EBITDA fell to a loss of £131m, considerably higher than the £11m loss the company posted in 2020.

According to Deliveroo, the rise in aggregate profits was offset by increased spending on marketing to increase brand awareness and drive new customer acquisition, as well as new investment in technology.

In fact, marketing spend almost doubled compared to 2020, from £359m to £629m. However, investments in the first three quarters of 2020 were slowed by uncertainty surrounding the pandemic and an ongoing antitrust investigation by the Competitions and Markets Authority (CMA).

Since then, the company has been able to invest to “create sustainable long-term value,” leading to increased marketing and overhead costs, chief financial officer Adam Miller said on a call with investors this week. morning (March 17). marketers can learn from brands going public

While adjusted EBITDA losses may have increased, Deliveroo recorded a 57% increase in revenue over the year to £1.8bn, mainly due to an increase in gross transaction value ( GTV).

The delivery brand saw further market share gains in the UK, where GTV grew 71% year-on-year. The group has also increased its market penetration, extending its coverage to 77% of the UK population compared to 53% at the end of 2020.

On-demand grocery deliveries accounted for 8% of Deliveroo’s GTV in 2021, with an additional 4,000 grocery partner sites added during the year. Its Deliveroo Hop fast delivery service has also launched.

As such, the company said it expects to break even on an Adjusted EBITDA basis by the second half of 2023.

The company also expects to grow its EBITDA-adjusted profit margin from -2% in 2021 to 4% or more by 2026, an increase of 600 basis points over time.

“Careful” investment in the brand

According to founder and CEO Will Shu, the main levers to achieve this will be to generate gross profit and improve marketing effectiveness, both at a more or less equal ratio. Each lever should improve Deliveroo’s margin by 250 to 300 basis points.

On the gross profit side, one area that Shu said the company is “most excited about” is the opportunity for advertising partnerships with FMCG companies, a proposition the company is in the early stages of launching. scale after launching sponsored placement slots and a sponsored carousel on the grocery side of the app.

“This is an area that is very early in development, especially compared to our Restaurant Ads platform, which is live. But this is a proven big opportunity for online platforms and it already represents a significant share of revenue for some actors,” Shu said.

“Ad revenue is only a small part of our current model, but it’s also a really big opportunity… It’s grown really well and we’re really excited about it.”

On marketing, Deliveroo plans to continue investing to “support the growth of the business”, with technology being the “priority” investment.

We’re cautious about the brand, but we’re also aware of its importance, especially in those newer markets that may not have heard of us.

Will Shu, Deliveroo

“How do we build the technology to get better at the things we already do? asked Shu.

“We are at the start of this journey and there are a lot of opportunities ahead. Key examples of this are network efficiency and the machine learning models that power this. »

Deliveroo will also invest in technology-focused roles within its team, with Shu emphasizing data scientists, product people and designers.

On top of that, the company plans to continue working on “longer-term innovations and initiatives,” such as additions to grocery, Hop, and “potentially” non-food.

Regarding the marketing activity itself, Shu said brand building continues to be important, although the company is “cautious” about spending in this area as it is difficult to track them. assign.

“When it comes to marketing, we think we’re still early in this industry when it comes to online penetration. This is quite low compared to other categories online. So we’re building top-of-funnel awareness of our offering in restaurants and grocery stores,” Shu said.

“It’s about brand spend, and we measure the effectiveness of that brand spend through our econometric models. Brand spend is one of those things that’s just hard to attribute directly to specific consumers and specific orders, and so understandably people can be skeptical about brand spend.

However, Deliveroo has seen through consumer surveys that one of the main reasons new consumers try its services is because of the visibility of its cycling backpacks, Shu said.

“So we’re cautious about the brand, but we also realize its importance, especially in these newer markets that may not have heard much about us or even the industry.”

Increase performance efficiency

Meanwhile, the brand is working to make its growth marketing spend more efficient. Deliveroo classifies growth marketing as a combination of ‘classic’ performance marketing, as well as customer acquisition initiatives like free trials of new users and winning back customers with CRM.

The company wants to invest in growth marketing in a “very high-quality way,” Shu said.

“So we’re not just urging a group of consumers to stop transacting unless you continue to give them discounts. A lot of work has been done to make this much more efficient.

Growth Marketing’s goal in the coming year will be to become “more effective at driving growth” and experiment with new techniques that can “evolve” into a “proven bucket of growth” over time. . Resources will be allocated each year to experiments to this end.

Ad revenue is only a small part of our current model, but it’s also a very big opportunity.

CFO Miller added that due to all of these factors, the company expects GTV’s percentage marketing to decline over time, with “further upside” expected beyond the target of 2026.

Deliveroo’s marketing activity last year included its “Full Life” campaign, in which the brand pledged to work with partner restaurants and grocery stores to deliver 1 million meals to communities in need here. early 2022.

As an official partner of the England football team, the brand also engaged in extensive activity around the Euro 2020 tournament in June and July, including a high-profile television campaign.

As well as posting a number of reactive announcements in the press, outdoors and on social media playing on the rivalry between Italy and England ahead of the Euro final, Deliveroo donated 15,000 vindaloo curries freebies and introduced “game day” food and beverage packages.

However, since then the company have announced that they will not be renewing their £3.5m sponsorship deal with the team.

Elsewhere, rival Just Eat believes it has also paved the way for improved profitability this year and beyond, having driven ‘strong growth’ during the pandemic with a substantial increase in investment in its brand .Just Eat on ‘clear path to profitability’ after 85% increase in marketing spend

The food delivery service has increased its global marketing spend by 85% compared to 2021, from €369m (£224m) in 2020 to €684m (£570m). This is the second year the company has significantly increased its marketing investments, having increased spending by 158% between 2019 and 2020.

A considerable drop in capital spending can be expected next year, with CEO Jitse Groen saying that marketing spending has “reached a ceiling” and is not expected to increase further.

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