Food delivery platforms still have legs

SA’s soaring online meal delivery segment is demonstrating its potential by growing at 50%-60% a year, say the sector’s biggest players.

Even before the pandemic, online meal delivery platforms were becoming increasingly popular, but Covid restrictions have accelerated adoption by more customers.

Nakampe Molewa, Uber Eats’s Sub-Saharan Africa general manager, said the potential of the online delivery market is “huge”, adding that players “have hardly scratched the surface of it”.

“The market itself in general is growing at about 50%-60% on an annual average basis,” he said.

Molewa said the market is “very competitive”, and gone are the days when good brand equity alone could carry a company and make it profitable.

“We’ve got good brand equity coming off the legacy of Uber Rides, but it can only take you so far. In the South African market, it is a delicate balancing act as real disposable income is a challenge. You really have to give a product that you can price optimally and then at the same time you have to make the business profitable.”

With intensifying competition comes a dilemma — do companies grow market share or profits? 

“Do you run a profitable business and sacrifice market share or do you jump into the pit and price yourself to oblivion?” said Molewa.

Uber Eats, which has been operating in SA for five years, is “very happy with its business”. It  does not disclose its profit and revenue because it is unlisted, but it is still growing even with new entrants such as Bolt Food coming to market in the past 20 months, the company said.

“It is just testament to the category, it is growing and it is accommodating all of us,” said Molewa.

But for an online meal delivery platform to become profitable while still expanding is particularly challenging.

Driver numbers have quadrupled over the past two years, providing meaningful income opportunities to thousands of people

—  Alexander Wörz, CEO of Mr D Food

Mr D Food, which is owned by Naspers’s Takealot Group and is arguably the most established player, is yet to be profitable.  Mr D Food started as Mr Delivery in 1992 and was bought by Takealot in 2014. The Mr D Food app was launched in 2016.

Alexander Wörz, CEO of Mr D, said “although Mr D Food is not a profitable business, we are proud of our impact on the local jobs market”. 

As the company has grown, its “driver numbers have quadrupled over the past two years, providing meaningful income opportunities to thousands of people across SA, many of whom were previously without an income”. 

Wörz said there are “currently over 12,000 drivers delivering for Mr D Food, servicing areas across all nine provinces, offering more than just restaurant delivery”.

He said that apart from more than 8,000 restaurants, Mr D Food also serves a “strong network of convenience and liquor outlets”.

Naspers, which released results for the six months ended September 30 last week, does not provide figures for the individual brands under its food delivery platforms, but said they all “gained scale over the past 18 months, driven by tailwinds from the pandemic”.   

However, it said trading losses in food delivery rose $123m (R1.9bn) to $312m, reflecting the “increased investment noted above and higher customer-acquisition costs after lockdowns ended in our key markets”. 

Globally, the group’s food delivery brands include Swiggy and Delivery Hero.

Naspers’s food delivery platforms reported revenue growth of 86% for the period.

Peter Takaendesa, head of equities at Mergence, said the online food delivery segment is one of the fastest growing in the world, but that the problem in SA and elsewhere is how to make money from it, “because the investment required to grow these platforms as well as the increasing competition just makes it difficult to achieve profitability at the moment”.

Meanwhile, the fight for market share continues.

Molewa did not disclose Uber Eats’s market share in SA, but he said it and Mr D are probably almost equal in size and the most dominant players but smaller players such as Bolt are growing rapidly.

James Townsend-Rose, country manager for Bolt Food SA, said the group has experienced strong growth since it launched in Cape Town last year just as the country entered lockdown, with annual growth of more than 100%.  The group launched services in Johannesburg in early October.

“We really saw the benefits start coming into effect this year in Cape Town, with more momentum as there are more restaurants, customers and couriers on our platforms. A marketplace relies on liquidity — you need to reach a certain level of restaurants, customers and couriers to operate really well — and we started to hit that in April/May this year in Cape Town.

“And when you hit that you start to see really sticky customers, the couriers stay and the restaurants enjoy the extra value that you bring. Cape Town has really been a success story for us.”

Townsend-Rose also estimated market growth in general online food delivery to be in the region of 50%-60% a year.

Both Uber Eats and Bolt said convenience grocery and general retail offer strong growth opportunities for online delivery platforms.

For Molewa, delivery relationships with SA’s abundant petrol station forecourt shops offer growth potential for Uber Eats. 

Townsend-Rose said Bolt Food was looking at the grocery retail sector globally “and no doubt as we go into the planning for next year we will start to come up with an Africa strategy, and a South Africa strategy within that as to how we develop grocery delivery within SA”.

Meanwhile, a Competition Commission inquiry is under way into business-to-consumer online platforms. Online food delivery platforms form part of this investigation, which began in May. Competition Commission spokesperson Siyabulela Makunga said it will be completed within 18 months of the start date. 

Makunga said the overall inquiry is “interested in understanding the experience of business users [restaurants], in particular the extent of platform dependency, the restrictions placed on their business by platforms, the perceived fairness of search algorithms, platform terms and conditions, and platform commission fees, as well as the impact on their business of any unfair treatment”. 

Townsend-Rose said he “wouldn’t hazard a guess what [the competition authorities] will recommend when it is completed”, but he believes the “investigation is worthwhile”. 

“We agree that an equitable playing field for all stakeholders is important, so we will go through the process and we will play our role,” he said.