Deliveroo pulls back on marketing spend as inflation softens demand

Deliveroo had planned to increase marketing spend over 2022, but as customer acquisition and retention weakens, the business has decided not to pursue top-line growth.

DeliverooDeliveroo pulled back on marketing spend over the second quarter of 2022, as the impact the cost of living crisis is having on consumer spending became more apparent.

According to the online food delivery company, growth slowed sequentially in the second quarter compared to the first, with gross transaction value (GTV) growth in constant currency terms down from 12% in Q1 to 2% in Q2. GTV reached £3.6bn for the first half.

In the UK and Ireland, GTV grew to £1.9bn over the first half of the year, an increase of 8%. However, growth slowed from 12% in the first quarter to 4% in Q2.

Speaking to investors today (10 August), Deliveroo CFO Adam Miller said marketing has remained “broadly flat” for the last three consecutive periods, representing “improvements” in marketing as a percentage of GTV.

At the end of last year, Deliveroo had planned to increase marketing spend over 2022 – but the market “has changed a lot since then”, he said.

“We’ve taken steps to manage the P&L given the softer consumer environment that we’ve seen, particularly in Q2. We made conscious decisions to pull back on marketing spend, consistent with our stance that we won’t chase top-line growth against a backdrop of consumer headwinds,” Miller explained.

Through “careful targeting” of spend, marketing as a percentage of GTV reduced over the second quarter, he added. The main impact of that is expected to come through over the second half of the year.Deliveroo lays out marketing plan as it aims to break even next year

However, according to Deliveroo CEO Will Shu, the impact of reduced marketing spend alongside the cost of living crunch has already had an impact on the service’s customer base. Although Deliveroo’s customer base has continued to grow year on year, up 4% to an average 7.8 million monthly active consumers in Q2, active customers declined “slightly” compared to Q1.

Both acquisition of new customers and retention of existing customers was “weaker” over the second quarter and acquisition of new customers this year has been “lower” than in previous years, Shu explained.

He added that lower retention is primarily being seen among lower frequency customers. “We see higher resilience from the more affluent consumers who generally order more frequently,” said Shu.

Overall, Deliveroo reported an EBITDA loss of £68m for the first half of the year, up from £26m in the first half of 2021 but lower than the loss of £106m it made in the second half of last year. The business credits efficiency of marketing investments and gross profit improvement with driving the sequential uplift. Gross profit was up 16% year on year to £301m.

The business claims Deliveroo continues to gain share in the UK and Ireland, even as the market is impacted by consumer headwinds. In the first half, orders grew by 12% to 80.1 million.

“In terms of profitability, we remain confident in our ability to continue to adapt financially to the rapidly changing macroeconomic environment through gross margin improvements, efficient marketing expenditure and tight cost control,” the business said.

Deliveroo’s spend-cutting strategy marks a stark contrast to the marketing strategy of rival Just Eat, which bumped marketing investment up by another 40% over the first six months of 2022 as it also pursues profitability.

Advertising revenues

Deliveroo grew its overall revenue by 12% over the half year to a little over £1bn, exceeding overall GTV growth of 7%. On top of growth in commission revenue and consumer fees, the business said it has seen “increased contribution” from advertising as it scales the new revenue stream.

The business launched its sponsored positioning product for partner restaurants last year and, according to Shu, early uptake has been “very good”, as has engagement from partners.

Advertising revenue remains a “small” part of Deliveroo’s overall revenue, Miller added, but is a “growing part of our current model”. The business also credits its increased contribution with driving an uplift in gross profit margin as a percentage of GTV, up 130 basis points (bps) compared to the second half of 2021 and 70bps on the first half.

Deliveroo has also now launched the Deliveroo Media and Ecommerce platform, although as it went live in July it has not contributed to any revenue improvements seen in the first half, Miller said.

Announced in June, the platform will offer advertising on the food and grocery delivery service’s order tracker page for the first time, with new formats to come over the coming months. With this new platform, consumer FMCG brands will also be able to advertise to customers of Deliveroo’s grocery delivery proposition.Just Eat raises marketing spend by another £100m as it pursues profitability

Meanwhile, the business has continued to enhance its consumer value proposition this year. Deliveroo’s grocery offering has expanded into new partnerships in the UK and Ireland with Waitrose, Sainsbury’s, Co-op, Asda and Spar, as well as internationally.

In May McDonald’s was added to the Deliveroo platform in the UK as part of a new, long-term global strategic partnership, and non-food partnerships now include WHSmith and LloydsPharmacy.

The UK and Ireland restaurant selection was further expanded by approximately 5,000 sites over the period, increasing the base of restaurants by 9%. The number of grocery sites live across the country has increased 17% since the end of 2021 to almost 7,000.

“So far in 2022, we have made good progress delivering on our profitability plan, despite increased consumer headwinds and slowing growth during the period. We are confident that in H2 2022 and beyond we will see further gains from actions already taken, as well as benefits from new initiatives,” Shu said.

“We remain confident in our ability to adapt financially to any further changes in the macroeconomic environment. We continue to be excited about the opportunity ahead and our ability to capitalise on it.”