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The Deliveroo IPO: sign of a changing food and drink industry?

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The Deliveroo IPO: sign of a changing food and drink industry?

The Deliveroo IPO: sign of a changing food and drink industry?

At the beginning of March 2021, gig economy delivery company Deliveroo announced that it had chosen the London stock market for its £5bn initial public offering (IPO). It is planned that the flotation will raise £1bn and is expected in early April.

The Deliveroo IPO

Deliveroo was founded in 2013 and has since grown rapidly, now operating in the UK, France, Germany and ten other countries. In January 2021 it raised $180m, which confirmed its status as one of the UK’s leading privately-owned tech start-ups valued at more than $1bn (known as ‘unicorns’).

As part of the IPO, Deliveroo will make £50m of shares available to its customers, who can register their interest via the company’s app. The only prerequisite is that customers have a Deliveroo account, and have made at least one order through it. Founder and CEO Will Shu believes this will give as many customers as possible the opportunity to become shareholders, rather than ‘locking them out’ of the deal in favour of the usual institutional investors.

The company will take advantage of a dual-class share structure (already used by US companies such as Facebook and Alphabet, Google’s parent), split into class A and class B shares. The latter will be held solely by Shu, which will grant him 20 votes per share, rather than 1 vote per share for other investors. This structure follows the recent spring budget announcement that certain restrictions on listing rules in the UK will be relaxed to allow company founders to retain greater control after flotation. However, this will only continue for three years, after which Deliveroo intends to adopt a more traditional single share class structure.

The IPO in the broader industry context

Although significant, Deliveroo’s IPO announcement is perhaps unsurprising. Aside from a global surge in equity capital markets as economies recover from the pandemic, consumer food and drink habits are also shifting. Many have become reliant on some form of delivery service for their favourite brands during the various national lockdowns.

"While some restaurants (such as Wagamama) and ‘daytime’ takeaway food outlets (such as Greggs) have reported financial losses, others have confounded the grim March 2020 predictions of economic ruin with soaring sales figures."

A prime example is Domino’s Pizza, which is currently in the process of adding 200 new outlets to its existing 1,201 stores following a surge in lockdown business. On New Year’s Eve 2020, when pubs, bars and clubs were once again closed, Domino’s reported that 14 pizzas were sold every second.

It is also worth noting that Deliveroo’s competitors are experiencing similar success. Just Eat, now formed of the London-listed company of the same name and Dutch group Takeaway.com following a £6bn merger, reported a 54% increase in sales in 2020. It is currently in the process of acquiring US-based GrubHub, due to complete later this year, after which it is set to become the largest meal delivery company in the world.

The sign of fundamental change?

Pandemic restrictions on dining in have hit restaurants, bars and pubs the hardest, while takeaways have been able to more or less continue business as usual. Of course, it has been a win-win situation for the likes of Deliveroo and Just Eat, who have continued to deliver from coffee shops, restaurants and takeaways alike, unfazed by lockdown restrictions. In future, this could well give takeaway food giants a financial edge over restaurants, compared to pre-pandemic times.

Consequently, we may see restaurants scaling down their operations, while takeaways and their supporting delivery services ramp theirs up. We have already experienced the shift from traditional high street shopping to online retail in recent years, and a similar trend could follow in the food and drink industry. That said, consumers are highly unlikely to fall out of love with the restaurant experience. Lockdown-weary consumers are pining for this choice of social activity again.

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If you'd like more information on this update, please contact Daisy Divoka

This article was prepared by Tom Revitt.