As some restaurant delivery aggregators struggle to maintain sales growth in the face of global macroeconomic headwinds, multinational food delivery service Delivery Hero is seeing success improving the economics of the model with targeted incentives to boost average order value (AOV).
On call with analysts Tuesday (Aug. 16) discussing the delivery aggregator’s second-quarter financial results, CEO and Co-founder Niklas Östberg said the company makes “probably a million pricing decisions per month” in an effort to boost profitability. Artificial intelligence (AI) plays a role, automating some of these decisions. Östberg added that the company has seen success with basket incentives to drive average order size.
“It could be simple things, like we don’t give vouchers to someone unless they have a reasonable basket, or if someone is ordering very small then it will be a small basket delivery fee,” Östberg said, “and therefore people move up their basket to avoid that extra delivery fee, small basket fee.”
The company, which operates in more than 70 countries across four continents under a range of banners, outlined its “Path to Profitability,” saying it expects to be profitable in the second half of the year due to these AOV-driving initiatives, to more targeted marketing spending, to new service fees and more.
The news comes as competitors struggle to make the economics of food delivery work. Just Eat Takeaway, for instance, shared earlier this month that it has written down the value of its U.S.-based division Grubhub by 3 billion euros ($3.1 billion) as inflation has American consumers pulling back from pricy food options such as restaurant delivery.
Related news: Just Eat Writes Down Grubhub Valuation by $3.1B on Order Declines
Delivery Hero is also beginning to leverage a strategy that many competitors have been implementing in recent years, using a subscription or membership model to incentivize more frequent purchases. In the second quarter, the company launched a subscription service in Argentina, Chile and Peru, and the aggregator listed its subscription efforts as a lever to boost margins going forward.
Subscriptions have been key to many aggregators’ efforts to boost loyalty in the face of stiff competition. Uber, for one, noted on a recent earnings call that nearly one in three delivery orders came from members of the company’s Uber One program.
Read more: 1 in 3 Uber Eats Orders Come From Paid Subscribers
Similarly, DoorDash, the United States’ leading aggregator, is seeing positive results from its subscription business.
“DashPass subs have continued to grow both on a year-on-year basis, as well as on a quarter-on-quarter basis to a record high,” Chief Financial Officer Prabir Adarkar told analysts earlier this month. “So, we feel good that DashPass is a key component of driving better affordability for our consumers and the growth has been consistent and reliable.”
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