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    Why It’s Hard to Make Cold Cash Delivering Hot Food

    Traditional platforms need to invest in delivery or risk having their lunch eaten

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    Why It’s Hard to Make Cold Cash Delivering Hot Food

    Companies that specialize in helping you order takeout food online have done a remarkable job delivering returns to shareholders. Now they also need to deliver meals to customers. Investors can expect lower margins in exchange for a step-up in growth.

    Grubhub , GRUB 0.04% Just Eat, Delivery Hero DHER -0.56% and Takeaway.com TKWY -2.47% are all listed owners of websites and apps that serve as ordering platforms for restaurants. They make money by charging restaurants a cut of orders placed through their platforms. The restaurants, for the most part, handle getting the food to the customer.

    It is a lucrative business. Without employing much capital, U.K.-leader Just Eat reported an operating margin of more than 20% in the first half of last year. Shareholder returns have followed: Shares have more than tripled since its 2014 listing.

    But there’s a threat to this comfortable status quo: Food-delivery specialists such as Uber Eats and Deliveroo have built restaurant marketplaces of their own, while also handling the physical delivery on behalf of restaurants.

    Traditional platforms need to invest in delivery or risk having their lunch eaten. This raises issues: Delivery is a much more capital-heavy, lower-margin business than creating a marketplace. The appropriate business model for delivery is also open to debate. Uber Eats and Deliveroo have grown fast by recruiting workers in the so-called gig economy. Regulators may be clamping down on such practices, but meanwhile it may be hard for other platforms to compete cost-effectively. Scale and network effects argue for significant investment.

    Getting into the delivery game will massively expand the market platforms serve by plugging them into restaurants and larger chains that don’t currently cater to remote diners.

    Why It’s Hard to Make Cold Cash Delivering Hot Food

    In time, this could lead to a much more profound disruption of the restaurant industry, as  so-called cloud kitchens, without the cost of prime retail space, work exclusively for online orders. Deliveroo has already pioneered this model with kitchen lots for restaurants to rent. Delivery Hero thinks cloud kitchens are set to take market share.

    Grubhub, the leading U.S. ordering platform, is arguably furthest ahead in taking delivery seriously. This month it signed a deal with Yum Brands , owner of KFC , Taco Bell and Pizza Hut, to host franchisees on its platforms and help them with deliveries. Intriguingly, the agreement was cemented by Yum taking a 3% stake in Grubhub. The latter’s stock jumped 27% on the announcement.

    A cyclist delivers food for Deliveroo in London.
    A cyclist delivers food for Deliveroo in London. Photo: toby melville/Reuters

    Just Eat and Takeaway.com, which is big in the Netherlands and competes fiercely with Delivery Hero for dominance of the German market, have been late to delivery. Just Eat’s new Chief Executive Peter Plumb could well announce a rethink of the strategy alongside annual results next month.

    There’s a way for the takeout platforms to turn delivery into an opportunity. But it will cost more than investors have grown to expect.