Mason Stevens
9 Apr, 2021

The cheeseburger from “Five Guys Dubai” was recorded as the most popular order on Deliveroo worldwide in 2020. The burger itself is comprised of two freshly grilled patties, two slices of American cheese, a soft toasted bun, and the choice of up to 15 different toppings.

For Deliveroo (LSE: ROO) shareholders, there would have been no victory burgers last Thursday, with their IPO delivering the worst result seen in the history of the London Stock Exchange, falling 26% on its first day of trading.

But where did it all go wrong? Their competitors have not encountered such issues upon listing, with Doordash’s (NYSE: DASH) 2020 IPO soaring 86% on the first day of trading.

Today we will go over what drove Deliveroo’s poor IPO performance and the state of the food delivery industry as a whole.

Overvaluation or Negative Industry Backdrop?

Deliveroo’s IPO launched at £3.90, giving it a market capitalisation of £7.6bn. As of market close on 7/4/21 in London, the share price was down 26%, with its poor performance a result of several industry and company specific factors which were not accurately reflected in the IPO valuation.

Source: Bloomberg

The first of these was the regulatory risk posed by recent changes in UK legislation, where drivers in the share-riding industry were no longer to be classified as independent contractors, but instead as workers – entitled to minimum wages, annual leave and pension benefits.

If similar laws were to be passed for delivery drivers, Deliveroo would be faced with even greater strain on their currently unprofitable business model. Other listed delivery companies have been affected by this, but not to the extent of Deliveroo, given that the majority of the regulatory impact has been felt in the UK – Deliveroo’s main point of business.

The IPO was also a victim of poor timing, with COVID-19 associated tailwinds for the food delivery industry beginning to abate – as vaccination roll outs pick up and restaurants begin to reopen at a faster rate around the world – and especially in the UK.

Investors were also put off by the dual class share structure implemented by CEO, Will Shu – who is to be the only owner of Class A shares, which entitled to 20 votes per share. Whilst this structure is commonplace for many tech stocks, investors perceived this to be a weakness in the deal given the ineligibility of dual class share structures to be included in the FTSE 100 index, and the subsequent removal of passive fund flows for the shares.

Where is the Industry Heading?

In spite of poor performance over the past few months, the industry has undergone rapid growth over the past year.

Source: Bloomberg

The COVID-19 pandemic has accelerated the transition of consumers towards delivery food options, with both penetration rates and order frequency increasing around the world (JP Morgan 2021). Whilst some revenue is expected to be lost as restrictions continue to ease, consumers have proven to remain sticky once acquired.

Along with further geographic growth, opportunities also exist in product line expansion, with dark stores (retail grocery stores which only operate to fulfil online shopping orders) set to change the way we do our grocery shopping.

These dark stores are typically small in size (to ensure that they are as close to the end customer as possible) and aim to provide fast deliveries of basic supermarket goods (generally within 30 minutes or less). Dark stores don’t aim to replace supermarkets, but instead act as a stop gap between shops when in a squeeze – think back to any time you forgot to pick up birthday candles, soap or paper towels and have to drive back to the shops.

Opportunities for market expansion also exist through virtual kitchens (also referred to as cloud kitchens), which are restaurants which exist solely to service delivery food customers. They are typically run by the delivery apps themselves and are able to offer more competitive pricing through only requiring a kitchen space and chefs – with no front of house staff or storefront required.

This serves as a potentially lucrative form of additional revenue for delivery apps, who will be able to leverage search data to ascertain areas of strong consumer demand and roll out/move virtual kitchens accordingly.

However, in order to expand, the industry will first have to overcome regulatory risk associated with the rights of their workers. As mentioned earlier, concerns have been raised by investors over whether delivery drivers will eventually be classified as workers – where they will be entitled minimum wages, annual leave and other rights.

Now, who are the major players in the industry?

Delivery Hero (DE: DHER)

Delivery Hero is a German food-delivery company, operating in 40+ countries throughout Europe, Asia, Latin America and the Middle East.

Along with being one of the largest players in the European food delivery market and boasting an estimated 8.3m daily orders (JP Morgan 2021), Delivery Hero has also sought to vertically integrate their business model through their creation of dark stores (“Dmarts”). They currently run 491 Dmarts in 28 countries, providing almost instant delivery of groceries and household goods to consumers around the world.

Source: Delivery Hero

Delivery Hero have also begun to roll out virtual kitchens (“DH Kitchens”) around the world by creating partnerships with local vendors and leasing them kitchen space in their virtual kitchen complexes.

Unlike many of their competitors, Delivery Hero has also prioritised expansion in emerging markets, allowing them to establish dominant market shares in growing markets, differentiating and diversifying their business model.

Doordash (NYSE: DASH)

Doordash is the largest US food delivery company, having approximately 50% market share, which is 17% higher than the nearest competitor – Uber Eats. Currently, Doordash derives 95% of its revenue from USA, undertaking little global expansion to date (JP Morgan).

Doordash has an estimated 3.2m orders per day and differentiates themselves through their provision of “Drive” – a courier service, and “DashPass”- a subscription model allowing free delivery from select stores.


Uber Eats is the most widely available food delivery service in the world, active on all 6 continents and being a market leader in many countries.

Along with dominating many markets, Uber is also in the midst of rolling out their “super-app”, which would aim to provide an all-encompassing user experience through the integration of ride hailing, food and grocery delivery and banking into one application.

Speaking of “Super-Apps”

The concept of a “super-app” has been prominent in the East for years, seen primarily through the Alipay platform, and more relatedly through the soon to be listed, long term Mason Stevens favourite – Grab.

When trying to envisage what Uber’s super-app will look like, it’s useful to use Grab as a case study, who are years ahead in terms of their range of product lines. Grab’s super-app currently provides a number of services, including:

The super-app structure has proven to be effective in the East and has allowed greater scalability and profitability, however whether Western consumers appreciate the benefits of such an app is another question.

Is Food Delivery Going to Stick Around?

As increasing pressures mount on the reclassification of ride hailing and delivery drivers as workers, it begs to ask the question – where will the food delivery industry end up? If minimum wages are to be applied to delivery drivers, long term prospects of food delivery companies will be called into serious question. If greater working conditions are granted to food delivery drivers, companies able to vertically integrate and generate alternate revenue streams will be well placed to benefit from a declining number of competitors.

The views expressed in this article are the views of the stated author as at the date published and are subject to change based on markets and other conditions. Past performance is not a reliable indicator of future performance. Mason Stevens is only providing general advice in providing this information. You should consider this information, along with all your other investments and strategies when assessing the appropriateness of the information to your individual circumstances. Mason Stevens and its associates and their respective directors and other staff each declare that they may hold interests in securities and/or earn fees or other benefits from transactions arising as a result of information contained in this article.