Delivery Hero wonders how to pass on rising passenger costs

Customers ordering food deliveries may need to be more flexible about wait time if the costs of the concert economy continue to rise, said the head of German food delivery app Delivery Hero .

“If our rider costs [go] and customers are not willing to pay for it. . . this is by far the biggest risk for the food delivery segment, ”managing director Niklas Östberg told the Financial Times.

“A lot of people aren’t willing to pay an extra 30 cents per order,” he added, but might be willing to wait 25 minutes to get their food, while others would pay a euro for their order. is delivered more quickly.

But the Swedish executive stressed that the group would only implement such a policy if rising costs eat away at its profit margins.

Östberg’s comments came after the Berlin-based group announced that its food delivery business would break even for the first time in the second half of the year, using its measure of adjusted profit before interest and taxes.

The company’s 10-year forecast comes more than a year after Uber Eats, also using an adjusted metric, said its restaurant delivery service had become profitable on a quarterly basis.

Delivery Hero, which operates in Asia, Europe, Latin America and the Middle East, has come under pressure from investors to reduce the amount spent on its rapid expansion. Last month, the company pulled out of Germany for the second time citing unsustainable costs.

Shares of the group, which is listed on the German Dax index, have fallen by more than a third in the past year, despite a foreclosure-induced order boom in several of its major markets.

A shortage of riders and increased competition during the pandemic lowered the profit margins of the industry as a whole and forced Delivery Hero to “spend hundreds of millions of dollars in rapid trade” in order to keep pace with new entrants such as Gorillas and Flink, Östberg mentioned.

Last year, the company, which spent $ 4 billion on South Korean Woowa, among other acquisitions, and also invested in Deliveroo, said it bought a controlling stake in Spanish rival Glovo, which operates in 25 country.

Once Glovo’s operations are merged into its core food delivery business in the fourth quarter of the year, the unit would generate between zero and 100 million euros, Delivery Hero said on Tuesday. That point would have been reached sooner, Östberg said, if Covid-19 had not “forced us to double down” and spend more to beat our rivals.

The company, which has a long-term profitability target of between 5 and 8 percent, added that spending on its fast-trading business, which offers deliveries of groceries and household items, would be gradually reduced. from the second semester.

Earnest L. Veasey