Ryanair boss Michael O’Leary summed up the perils of being an internet pioneer recently when he described the budget airline’s move into online hotel bookings. “We don’t want to be the innovator or the explorer. They f****** starve or get shot by the Indians. We want to be the settlers.”
Just Eat, the pioneer in online takeaway ordering, has so far managed to avoid either fate, instead getting nicely plump by signing up curry houses and chippies in droves to its commission-based system.
Since floating in 2014, its shares are up handsomely, giving it a valuation of close to £4bn and making it worth about 33 times this year’s projected earnings and about 47 times last year’s — rich by any standards, surpassing even the 25 ratio applied to the likes of Facebook.
Its special sauce is fairly simple: Just Eat has so far signed up 27,500 restaurants that pay it commission of about 13% on every takeaway customers order via its app or website, giving it about a quarter of the UK’s £6.1bn takeaway market. That’s £2.59 straight out of Indian Zest’s till every time you order your lamb madras with pilau rice. Each restaurant pays £699 to join, covering a computer terminal or tablet that goes in the kitchen, plus data analytics and access to wholesale ordering deals.
This yielded an impressive profit margin of 31% last year. But for how long can Just Eat warrant such a premium? From an idea in Denmark in 2000, its expansion has been meteoric, but there are signs that order growth is starting to slow. While the UK’s online delivery market remains in its infancy, with about half of all orders still placed by phone, competition is intensifying.
Rivals such as Deliveroo, Uber and Amazon are starting to take bigger bites out of the market. They offer something Just Eat cannot: delivery, and for Uber at a marginal cost. Just Eat is also looking for a new chief executive after the departure of its respected boss David Buttress.
As the incumbent, Just Eat’s response to competition has been predictable. It has jacked up commission by a percentage point and is swallowing rivals such as Hungryhouse (although the competition watchdog is probing the latter tactic).
This will get it only so far. Just Eat claims its app leads to bigger orders for takeaway owners, but its commission rise will test their patience. Competition typically leads to price falls, not rises. Just Eat has done a fine job of capturing Britain’s takeaway market, but its defences against far bigger, wealthier rivals are limited. Sell.
