What's your business model?

110799

How does Delivery Hero make money?

The company, which recently announced an IPO, takes 10 percent per order on its platform

Innovation series by Steven Loeb
June 8, 2017
Short URL: http://vator.tv/n/49ac

At one point there was a glut of food delivery companies popping up, including Just Eat, GrubHub, Sprig and Deliveroo, while some already established companies, like Square and Uber, were also trying to break into the space. The food delivery craze may have died down since then, as the space consolidated and some of the players shut down, but there's one company that seems to have emerged as the leader in the global market: Delivery Hero.

Though it may not be very well known in the United States, Delivery Hero is available in over 40 countries across the Middle East, Africa, Asia and South America. It has over 150,000 restaurant partners, and saw 197 million orders processed last year. It has 6,000 employees plus thousands of employed drivers.

The company has also raised a huge amount of fundind: $1.75 billion, including 387 million from Naspers in May. Other investors have included Rocket Internet, Insight Venture Partners, Kite Ventures, Luxor Capital Group, Phenomen Ventures and Vostok Nafta. It has been valued at over $3 billion. 

Now, just this week, the company filed to go public  on the Frankfurt Stock Exchange, looking to raise up to €450 million ($506 million).  

How does the company makes its money? The same way as other food delivery companies: by taking a percentage of each order, though the number is actually lower than some of its competitors. 

According to Nasdaq, Delivery Hero takes an average commission of 10 or 11 percent on each order, coming out to be roughly €1.60. GrubHub, meanwhile, is said to take an average of 13.5 percent. Delivery Hero does take higher fees if it does the delivery itself, rather than being done by the restaurant. 

In all, the company's revenue grew 71 percent in 2016 to €347 million ($390 million), and its revenue for the first quarter was €121 million ($136 million), a 68 percent increase from the same quarter last year. 

For its restaurants, restaurants on Delivery Hero made €2.618 billion ($2.95 billion) through the platform, up 51 percent year-over-year.

In an interview in 2016Delivery Hero CEO Niklas Östberg said that the way the company does business is "a good model for restaurants, too."

"We channel more business to them, and they increase their orders. And because the variable cost of food is pretty low, adding incremental customers is pretty lucrative. A restaurant that serves 100 orders a day might not make a lot of profit, for example, but if it boosts that to 110 orders a day, it would make good profits. Boost that to 200 orders a day, and it will make loads of money. So restaurants want to be on our platform, and we charge them a fee for transmitting orders. If they decide they no longer want to be on the platform, customers can order from other restaurants," he said. 

The company's gross profitability per order is 90 percent, due to the platform being automated and online. 

(Image source: deliveryhero.com)


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