BERLIN (Reuters) - The chief executive of online food ordering firm Delivery Hero (DHER.DE) expects competition from the likes of Amazon (AMZN.O) and Uber to make it harder to make money although the German company is still targeting breakeven this year.
Niklas Ostberg, a Swedish former management consultant who founded the company in 2011, said Delivery Hero has the critical mass to fend off the U.S. giants, but admits their move into food delivery could dampen profits.
“It will be difficult for all the market players to survive. Everybody is fighting for size, because only then you have a chance. It will be hard to make any money as long as competition is as it is right now,” Ostberg told Reuters.
As most people only download and use one food delivery app, start-ups spend heavily on marketing to win control of markets. Ostberg said Uber and Amazon can promote food delivery to existing customers and cross-subsidise the business.
The German firm is the world’s biggest food delivery platform, covering more than 40 countries in Europe, the Middle East and North Africa, Latin America and Asia-Pacific, and partnering with more than 150,000 restaurants.
It says it is market leader in 35 of those countries, although it is battling with Takeaway.com (TKWY.AS) for control of its home market, prompting the chief executive of its Dutch rival to raise the idea of a merger last month.
Ostberg rejected suggestions that any deal was imminent with Takeaway.com, saying acquisitions were less important now the company has reached scale, although it would still consider “interesting” targets.
“We have the size that is necessary to sustain competition,” said Ostberg, who was a top cross country skier for Sweden in his youth.
Delivery Hero, in which South African e-commerce giant Naspers (NPNJn.J) and Germany’s Rocket Internet (RKET.DE) are major investors, is well placed for more acquisitions after it made a placement of new shares to raise funds.
Delivery Hero, Takeaway.com and Britain’s Just Eat (JE.L) have built their businesses by creating booking platforms that advertise local restaurants, which handle their own deliveries.
The entry of Uber and Amazon into the sector has made them put a bigger focus on managing logistics, although Ostberg does not expect the business of delivering their own orders to expand much beyond 15 percent of sales.
“Economics may get tougher ... we may compete more and more on the delivery fees. The winner will be the one who is efficient enough to afford it,” Ostberg said.
Ostberg reiterated a goal to break even in terms of adjusted earnings before interest, tax, depreciation and amortization (EBITDA) in 2018 and make a profit on that basis in 2019.
UberEats has signed up more than 80,000 restaurants in nearly 200 cities around the world, while Amazon currently has a food delivery service open to members of its Prime shopping club in cities across the United States and in London.
Ostberg said the German market was smaller than one might expect, with order volumes similar to those it sees in Kuwait, with just a fraction of the population.
“Germans are probably a bit conservative to adopt new things. It might take 20 or 40 years until they order food like the most advanced nations,” he said.
Last week, Delivery Hero reported 2017 sales rose 60 percent to 544 million euros (484.69 million pounds) on a like-for-like basis, with growth particularly strong in the Middle East and North Africa, followed by Asia.
Additional reporting by Jonathan Weber, editing by David Evans