Food and beverages Food and grocery delivery path to profitability clearer post COVID-19

COVID-19 dampened food delivery demand in China but revealed an  improvement in unit economics. We are more positive on the long-term profitability of the sector. Key drivers are order frequency, order value, subsidy & delivery cost.

20 Jul 2020

Average number of meals ordered per week

Source: UBS Evidence Lab (>Access Dataset)

Larger order values and limited cost increases drive profitability

Our updated analysis of home-delivery demand and cost trends, supported by UBS Evidence Lab surveys, QuestMobile app data and conversations with delivery platforms, make us more positive on profitability over the next few years. In home delivery of non-restaurant orders (mostly groceries), we were positively surprised to find most respondents in the survey were willing to accept slower delivery speeds and higher delivery fees, indicating a path to profitability over time.

COVID-19 hurt food-delivery orders, but unit economics proven

Respondents on average ordered food delivery for 16% of meals in the past 12 months, lower than 18-19% in 2018-19. Instead, 49% of meals were cooked at home, higher than 44-46% in 2018-19. However, the long term trend remains positive for food delivery. The survey showed higher order frequency and order value vs prior years. Also, 32% of respondents only browsed one platform before ordering, up 3-5ppt from prior surveys.

Home-delivery profitability may be closer than investors realise

We believe the ability to improve order density and charge a fee could help home delivery platforms turn profitable. In the survey, 82% of respondents said they can accept next-day delivery for groceries as opposed to 1-2 hours, and 46% said they can accept an Rmb8-10 delivery fee..

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