Deliveroo lays out marketing plan as it aims to break even next year

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

The food delivery brand increased its gross profit by 43% to £497m over its last full fiscal year. However, adjusted EBITDA fell to a loss of £131m, considerably higher than the £11m loss the business reported in 2020.

According to Deliveroo, higher aggregate profit was offset by increased marketing spend to drive brand awareness and boost new customer acquisition, along with further investment in technology.

In fact, marketing spend nearly doubled compared to 2020, from £359m to £629m. However, investment in the first three quarters of 2020 was slowed by uncertainty around the pandemic and an ongoing Competitions and Market Authority (CMA) antitrust investigation.

Since then, the business has been in a position to invest to “drive durable, long-term value”, leading to increases in marketing and overheads, chief financial officer Adam Miller said on a call with investors this morning (17 March).What marketers can learn from brands undergoing an IPO

While adjusted EBITDA losses may have widened, Deliveroo recorded a 57% increase in its revenues over the year to £1.8bn, primarily due to a rise in gross transaction value (GTV).

The delivery brand saw further gains in market share in the UK where GTV grew by 71% year on year. The group also increased its market penetration, extending 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 rapid delivery service Deliveroo Hop was also launched.

As such, the business has said it plans to break even on an adjusted EBITDA basis by the second half of 2023.

The company also plans to lift its EBITDA adjusted profit margin from -2% in 2021 to 4% or over by 2026, a 600 basis point uplift over time.

‘Cautious’ brand investment

According to founder and CEO Will Shu, the main levers to achieve this will be driving gross profit and improving marketing efficiency, both at a more or less even ratio. Each lever is expected to improve Deliveroo’s margin by 250 to 300 basis points.

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

“This is an area that is super early in development, in particular compared to our restaurant ads platform, which is live. But it is a proven large opportunity for online platforms and it already represents a meaningful part of revenues for some players,” Shu said.

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

On marketing, Deliveroo plans to continue making investments to “support the growth of the business”, with technology the “foremost” investment.

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

Will Shu, Deliveroo

“How do we build technology to get better at things that we’re already doing?” Shu questioned.

“We’re at the beginning of this journey and there’s lots of opportunity ahead. Key examples on this are network efficiency and machine learning models that power that.”

Deliveroo will also be investing into tech-focused roles in its team, with Shu highlighting data scientists, product people and designers.

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

On marketing activity itself, Shu said brand building continues to be important, though the business is “cautious” about spend in that area as it is difficult to attribute.

“When it comes to marketing, we do believe we’re still early in this industry when it comes to online penetration. It’s quite low compared to other online categories. So we’re building awareness at the top of the funnel of our offering across both restaurant and grocery,” Shu said.Deliveroo orders double amid brand building push

“This is brand spend, and we measure the effectiveness of this brand spend via our econometric models. Brand spend is one of those things that is just difficult to attribute directly to specific consumers and specific orders, and so naturally people can be sceptical of that spend.”

However, Deliveroo has seen through consumer surveys that one of the top reasons new consumers try its services is due to the visibility of its rider backpacks, Shu claimed.

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

Increasing efficiency in performance

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 initiatives focused on customer acquisition like new user free trials, and winning back customers with CRM.

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

“So we’re not just incentivising a bunch of consumers that won’t transact again unless you keep giving them discounts. A lot of work has gone into making that much more efficient.”

The focus for growth marketing over the year ahead will be becoming “more efficient at driving growth”, and experimenting with new techniques that can “graduate” into a “proven growth bucket” over time. Resources will be allocated to experiments each year to that effect.

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

CFO Miller added as a result of all these factors, the business expects marketing as a percentage of GTV to decline over time, with a “further upside” expected beyond the 2026 target.

Last year, Deliveroo’s marketing activity included its ‘Full Life’ campaign, in which the brand committed to work with restaurant and grocery partners to deliver 1 million meals to communities in need by early 2022.

As the 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 TV campaign.

On top of releasing a number of reactive ads in the press, outdoor and on social media playing on the rivalry between Italy and England ahead of the Euros final, Deliveroo gave away 15,000 free vindaloo curries and introduced ‘matchday’ food and drink bundles.

However, since then the company announced it will not be renewing its £3.5m sponsorship deal with the team.

Elsewhere, rival Just Eat believes it has also paved the way towards improved profitability this year and beyond, having driven “strong growth” over the pandemic with substantially increased investment in its brand.Just Eat on ‘clear path to profitability’ after 85% rise in marketing spend

The food delivery service increased global marketing spend by 85% over 2021, from €369m (£224m) in 2020 to €684m (£570m). This marked the second year the business has dramatically increased its marketing investment, having upped spend by 158% between 2019 and 2020.

Considerably less investment spend can be expected next year, with CEO Jitse Groen declaring marketing spend has “reached a ceiling” and is not expected to increase further.