EQUITY RESEARCH UK | Internet Internet My Week As An Uber Eats Rider* 16 March 2020 Key Takeaway My name is Giles Thorne. I am now a 42-year-old man of middling athletic ability and still owner of an even more average bike. After my experience delivering food for Deliveroo in 2019, it made sense to build on that by delivering for Deliveroo again in 2020 while also delivering for Uber Eats for the first time. In a changing UK landscape, my "10 conclusions" have positive, and actionable, read-across to Just Eat Takeaway.com here. (*And Deliveroo, again) Back on the bike! After the benefits afforded by last year's "My Week As Deliveroo Rider" note and the ongoing lack of consensus as to the merits of delivering food, it made sense to expand on last year's experience by delivering for Just Eat's other This report is intended for [email protected]. Unauthorized distribution is prohibited. UK competitor and gig economy acolyte, Uber Eats, while also riding out again for Deliveroo (trying to replicate as closely I could last year's experience). To wit, I delivered across seven lunch and breakfast slots for both names during a thankfully mild (but at times, horribly wet) January and February 2020. This note remains a limited scope, but nonetheless unique, first person account of delivering food in the UK: It affords actionable insights into each side of the . three-sided marketplace that is online food delivery (the rider, the marketplace, the 10 conclusions from delivering for Deliveroo / Uber Eats restaurant). This year I've structured the outputs to focus on 10 conclusions from Conclusion 1: Delivering food in the UK is still gross profitable, the employment model and delivery fee the foundation stones my experience with supporting analysis and read-across to the listed names in my Conclusion 2: Gross profitability is similar for both Deliveroo and Uber coverage. Eats Conclusion 3: Volatility in gross profit streams has risen Positive read-across to Just Eat Takeaway.com (JET): Given the operational overlap, the read-across to JET is most actionable. In order of importance: delivering food Conclusion 4: Uber Eats has a high concentration of orders from in the UK is still gross profitable (validating the argument that delivered orders McDonald's warrant only a small discount to marketplace orders on EV / GMV); Uber Eats has Conclusion 5: My fee per mile cycled collecting + delivering was lower in 2020 (bearing mind though, that I didn't do anything to optimise my a concentration of orders from McDonald's; Deliveroo riders appear to be working earnings and this conclusion is based on delivering only 19 orders) Conclusion 6: I earned less per mile cycled on Uber Eats than Deliveroo harder to earn the same money; and volatility in gross profits streams for JET's competitors has grown. Conclusion 7: The delivery polygons have been stretched to the operator's benefit With gig economy regulation still in the political long grass, the next development is Conclusion 8: Deliveroo onboarding is superior to Uber Eats likely to come from JET: I continue to see evidence to support the argument that the Conclusion 9: The Deliveroo rider app has a better user experience than gig economy is an incremental labour model and its potential should be harnessed by Uber Eats' a progressive regulatory agenda; to view it through the prism of current labour laws Conclusion 10: Deliveroo wait-times are lower . (as many do) is, by definition, regressive. Since last year, the Brexit impasse has now come to an end, but I still see no appetite to rapidly advance the recommendations of the Taylor Review. This continues to bode well for unit delivery costs and the overall direct impact of choosing to deliver food for all operators. Notwithstanding, I see JET ignoring the political climate and embracing a full employment model for riders Giles Thorne * from here (for reasons I expand on in my separate note out today "European Online Equity Analyst Food Delivery: Back In Vogue"). +44 (0) 20 7029 8005 [email protected] Sebastian Patulea, CFA * Equity Analyst +44 (0)20 7029 8198 [email protected] ^Prior trading day closing price unless otherwise noted. Please see analyst certifications, important disclosure information, and information regarding the status of non-US analysts on pages 17 to 22 of this report. * Jefferies International Limited EQUITY RESEARCH UK | Internet Back on the bike! Many will be forgiven for wondering what on earth I'm referring to by declaring I'm "back on the bike". I'm referring here to my similarly titled note from February last year, "My Week As A Deliveroo Rider". The roots of the Deliveroo note go back to a conversation in early summer 2018. As we watched the Just Eat share price tank in the face of then-CEO Peter Plumb’s announcement of investments in delivery, a colleague suggested that it could be an insightful use of time to get out on the bike and spend a week delivering food. The UK has a liquid gig economy labour market, so signing up was easy. Last year, we had the choice of two platforms, Uber Eats and Deliveroo, and opted for Deliveroo. The Feb-2019 note was a first person account of what it is to work in food delivery and the gig economy. I delivered food across seven sessions, both breakfast and lunch, in two locations in London (The City, my place of work; and Hammersmith, my home neighbourhood). After the success of the first note, especially in informing our thinking on food delivery unit economics, it was clear that a follow-up should be pursued. And here it is! The obvious choice was to try Uber Eats. It also made sense to deliver again for This report is intended for [email protected]. Unauthorized distribution is prohibited. Deliveroo, replicating as closely as I could the 2019 sessions, to see what had changed. For completeness, Just Eat is not really an option open to me yet given its London deliveries are primarily undertaken by its sole remaining courier partner, Stuart. It's not yet signing up gig economy labour in London. A recap on the terms of reference It's important that any reading of this note be preceded by an understanding of its terms of reference. Alot of this is so obvious as to go without saying, but for avoidance of doubt: • Limited scope: Firstly, this remains a note that doesn't define a call to action in Online Food Delivery given its obvious limitations of scope. It's a first person account of what happens in delivery food, and it provides insights into food delivery unit economics. Some of the conclusions from the experience have now become more relevant to Just Eat Takeaway.com compared to the 2019 note, but this remains an ultimately imperfect perspective given the scope. • No optimisation: Secondly, because I delivered for Deliveroo again, it's important to make the point that I didn't seek to optimise my earnings. Online food delivery is a three-sided marketplace, each dimension of which having the wherewithal to constantly change until a fresh equilibrium is achieved. You'll note that from my previous note, I made the point that if my endeavours hadn't been for research purposes, I would have ditched delivering breakfast in Hammersmith in favour of doing more lunch sessions in the City (my actual earnings per hour of £8.33 could have been comfortably above £10). In this note, I was trying to understand what's changed for Deliveroo, so sought to replicate as closely as I could the 2019 conditions (times, places, mode of transport, etc). So yet again, I headed out, as a 42-year-old man of middling athletic ability (Exhibit 1) on my even more average bike (Exhibit 2-3). • Imperfect definition of gross profit: A point I made last year and would emphasise again this year: my commentary on gross profit per order excludes any costs incurred by the platform below the gross profit line. These costs can be substantial and permanent in nature: rider acquisition / insurance / conversion / training / retention; rider equipment; and the cost of refunded orders (this time, as with last time, I had multiple failed orders). My definition of gross profit per order is a theoretical, idealised gross profit. Equally, my analysis makes no attempt to quantify or qualify the indirect 16 March 2020 2 Please see important disclosure information on pages 17 - 22 of this report. EQUITY RESEARCH UK | Internet benefits a marketplace derives from delivering food (such as the impact on user order frequency and churn from having greater restaurant choice). Exhibit 1 - Bike and bag Exhibit 2 - Man and bike and bag Exhibit 3 - Two men and bike and bag This report is intended for [email protected]. Unauthorized distribution is prohibited. . . . Source: Jefferies Source: Jefferies Source: Jefferies My "10 conclusions" have a positive read-across to Just Eat Takeaway.com (and Delivery Hero too) In the 2019 note, I indulged the reader (or maybe I was indulging myself) with a thorough account of my onboarding process, where I was delivering and then the minutia of what happened during each delivery session. It was perhaps more than it needed to be, but the novelty of the content probably justified the mini-novella approach. You'll be relieved to hear I haven't done the same this time. I've instead structured the outputs of this note to focus on 10 conclusions from my experience, with supporting analysis. I've then supplemented this with the read-across to the public names under my coverage (Just Eat Takeaway.com, Buy, PT €90; Delivery Hero, Buy, PT €100). To recap, out of the two names under my coverage, only Just Eat Takeaway.com (JET) competes in the UK. The conclusions of this note are therefore more actionable for that thesis. Delivery Hero competes against both Deliveroo and Uber Eats in only 4 out of its 44 countries (Hong Kong, Singapore, Taiwan and the UAE). This can all be found in Exhibit 4 below. The conclusions of particular importance are highlighted in red. We pick up and expand on the sector and stock specific read-across in our separate notes out today "European Online Food Delivery: Back In Vogue", "Just Eat Takeaway.com: Four Catalysts For A Re-rating and "Delivery Hero: Get Onboard or Get Out of the Way" 16 March 2020 3 Please see important disclosure information on pages 17 - 22 of this report. EQUITY RESEARCH UK | Internet Exhibit 4 - "10 conclusions" 10 conclusions from delivering for Deliveroo / Uber Eats Read-across to Just Eat Takeaway.com Read-across to Delivery Hero Conclusion 1: Delivering food in the UK is still gross profitable, the Positive read-across to JET as it signals that GMV from delivery could Positive read-across to those DHER markets where it can replicate the employment model and delivery fee the foundation stones attract a similar multiple to marketplace orders same conditions Conclusion 2: Gross profitability is similar for both Deliveroo and Uber Positive read-across as it signals that neither competitor has a particular No read-across really, too UK specific Eats edge Conclusion 3: Volatility in gross profit streams has risen Positive read-across as it signals that JET's competitors have an increasing Positive read-across as it signals that DHER's competitors may have an operational risk profile increasing operational risk profile in those markets where conditions are similar to the UK (and Hong Kong, Singapore, Taiwan and UAE come to Conclusion 4: Uber Eats has a high concentration of orders from Very positive read-across as JET has just become McDonald's second Positive read-across to those markets where DHER have an overlap with McDonald's delivery partner in the UK. JET can now strike a decisive competitive blow Uber and has McDonald's in its marketplace to Uber Eats Conclusion 5: My fee per mile cycled collecting + delivering was lower in Positive read-across as it signals that JET can use marketplace gross profits No read-across really, too UK specific 2020 (bearing mind though, that I didn't do anything to optimise my to subsidise higher rider earnings and drive single-homing behaviour by earnings and this conclusion is based on delivering only 19 orders) riders on the JET marketplace Conclusion 6: I earned less per mile cycled on Uber Eats than Deliveroo Positive read-across as it signals the above strategy could be especially No read-across really, too UK specific effective in attracting Uber Eats riders Conclusion 7: The delivery polygons have been stretched to the operator's Hard to say. Either Deliveroo now has the buyer bargaining power to No read-across really, too UK specific benefit extract more from riders (and therefore a negative read-across to JET). Or Deliveroo unit economics need structural support (probably a positive Conclusion 8: Deliveroo onboarding is superior to Uber Eats No read-across really No read-across really, too UK specific Conclusion 9: The Deliveroo rider app has a better user experience than Small positive as it could stimulate more rider churn for Uber Eats Small positive as it could stimulate more rider churn for Uber Eats in those This report is intended for [email protected]. Unauthorized distribution is prohibited. Uber Eats' DHER markets where Uber and Deliveroo are both present (again, Singapore, Hong Kong, UAE, Taiwan) Conclusion 10: Deliveroo wait-times are lower Small positive as it could stimulate more rider churn for Uber Eats Small positive as it could stimulate more rider churn for Uber Eats . Source: Jefferies Four conclusions on unit economics for the operator Undoubtedly the most important area of analysis and conclusion from my time spent delivering food. The gross profit potential of a delivered ordered strikes to the heart of the three most important, and inter-related, debates in online food delivery: sector returns; the path to profitability and the outlook for competition. Conclusion 1: Delivering food in the UK is still gross profitable, the employment model and delivery fee the foundation stones It was a headline conclusion of the 2019 Deliveroo note, and one worth reiterating in 2020. Across the 19 orders I delivered for Deliveroo in 2020 and the 24 orders for Uber Eats, every single one generated a positive gross profit (Exhibit 5). As with last year, it's important to note again high the exact gross profit perimeter I'm referring to: for each order I was able to establish the AOV by replicating the order in the app; this would then give me the delivery fee charged to the consumer; adding the delivery fee and a presumed commission fee (I use 30% across all orders, more on that below) I'm able to calculate the revenue per order; the direct cost would then be my delivery fee. Obviously, this definition of gross profit overlooks direct costs related to technology and rider support and indirect costs related to refunds, discounts / vouchers and rider acquisition etc. In Exhibit 6, I have again looked at "Delivery Recovery", the ratio of the delivery fee charged to the consumer as a % of the delivery fee paid to me for every order. The percentages remain high at c.85% though it's important to note that the delivery fee we were quoted in the app may have been different from what we would have been charged had we moved to order completion. 16 March 2020 4 Please see important disclosure information on pages 17 - 22 of this report. EQUITY RESEARCH UK | Internet Exhibit 5 - Gross profit per order (JEFe) Exhibit 6 - Delivery recovery (delivery revenue / delivery cost) (JEFe) £18 160% £15 140% £12 120% 100% £9 80% £6 60% £3 40% 20% £0 Deliveroo 2019 Deliveroo 2020 Uber Eats 2020 0% . Deliveroo 2019 Deliveroo 2020 Uber Eats 2020 Source: Jefferies . Source: Jefferies This report is intended for [email protected]. Unauthorized distribution is prohibited. Conclusion 2: Gross profitability is similar for both Deliveroo and Uber Eats Delivery unit economics can be as much a function of the marketplaces' choices as its constraints. On that basis, comparing gross profitability between Deliveroo and Uber Eats is somewhat moot. Nonetheless, I'd highlight that the average gross profit per order was similar, with the median giving Uber Eats the edge (Exhibit 7). Conclusion 3: Volatility in gross profit streams has risen It's interesting to note the increase in volatility for Deliveroo in 2020, with the standard deviation in gross profit per order / delivery recovery / distance travelled per order all increasing (Exhibits 7-9). Exhibit 7 - GP per order (JEFe) Exhibit 8 - Delivery recovery (JEFe) Exhibit 9 - Distance per order (miles) Deliveroo Deliveroo Uber Eats Deliveroo Deliveroo Uber Eats Delliveroo Delliveroo Uber Eats 2019 2020 2020 2019 2020 2020 (2019) (2020) (2020) Mean £3.86 £4.05 £3.99 Mean 83.7% 79.1% 91.5% Mean 1.0 1.1 1.7 Median £2.99 £1.91 £2.32 Median 87.2% 80.5% 90.9% Median 1.0 0.7 1.8 . St. Deviation £3.05 £4.36 £3.62 . St. Deviation 8.5% 12.1% 25.2% . St. Deviation 0.5 0.9 1.0 Source: Jefferies Source: Jefferies Source: Jefferies Conclusion 4: Uber Eats has an Achilles heel, a serious one Exhibit 10 - Uber Eats, GP per order (JEFe) I delivered 24 orders for Uber Eats. Of those 24 orders, nine were McDonald's and three McDonald's / McDonald's / were KFC. Those two chains accounted for 50% of orders. McDonald's alone was over a KFC @ 30% KFC @ 15% third of orders. Furthermore, there is anecdotal evidence from my experience that those Mean £3.99 £2.67 orders have difficult unit economics: Uber Eats has evidently set the minimum AOVs Median £2.32 £1.81 very low (my lowest basket size was £4.29!); I had two failed orders while working for St. Deviation £3.62 £2.77 . Uber Eats, both KFC - in those instances Uber would refund the order to the consumer Source: Jefferies (I know this, because the consumer told me) while still paying me the delivery fee. It was comforting as a rider to know that you'd only need hang outside a McDonald's for a short while before catching a gig, but equally, for Uber Eats, the concentration risk looks startling. In the analysis thus far I've used a 30% commission rate for all orders. It's certain that Uber Eats is not charging McDonald's and Yum! Brands (the KFC parent company) that level. If we assume a 15% commission rate on the McDonald's and KFC orders, then the gross profit profile for Uber Eats looks much worse (Exhibit 10). This is always the challenge of working with a large brand rather than an independent restaurant; they (the big brand) value the platform for the delivery (hard, capital intensive, low yield) while the independent values the platform for the marketing 16 March 2020 5 Please see important disclosure information on pages 17 - 22 of this report. EQUITY RESEARCH UK | Internet efficiency (easy, scalable, high yield). In short, Uber Eats, come what may, has to get that Big Mac / Zinger Tower burger to the consumer, and if it's not in good shape when it gets there, Uber has to foot the bill. It's important to note that this challenge isn't exclusive to Uber Eats - all operators in the UK are dealing with large brands in some form or another. Exhibit 11 - Uber Eats gross profit per order (JEFe) £15 £12 £9 £6 £3 This report is intended for [email protected]. Unauthorized distribution is prohibited. £0 McDonald's / KFC @ 30% McDonald's / KFC @ 15% . Source: Jefferies Three conclusions on unit economics for the rider To quote the Grubhub CEO in his 3Q19 letter to shareholders, "A common fallacy in this business is that an avalanche of volume, food or otherwise, will drive logistics costs down materially. Bottom line is that you need to pay someone enough money to drive to the restaurant, pick up food and drive it to a diner. That takes time and drivers need to be appropriately paid for their time, or they will find another opportunity". With this in mind, let's turn to how much money I earned and how much work I had to do to earn it. Conclusion 5: My fee per mile cycled collecting + delivering was lower in 2020 (bearing in mind that I didn't do anything to optimise my earnings) To repeat a very important point I made in the Terms of Reference, in riding out in 2020 I did not seek to optimise orders. Furthermore, all my conclusions are based on a limited number of 19 orders. Nonetheless, in 2020, I earned less money for Deliveroo than last year, while having to cycle further. If I had optimised my behaviour, I'm sure I could have improved my earnings per hour online. I was looking to establish conditions for a like- for-like comparison of my 2019 Deliveroo rider experience a year later. On that basis, I'd highlight the following things: • My average Deliveroo earnings per hour was down c.30% at £5.92 in 2020, from £8.33 in 2019: With my average fee per ride in 2020 largely unchanged from 2019 (£3.90 from £3.86), the driver of the lower earnings was number of orders (19 across the seven sessions in 2020, from 25 in 2019). There could be any number of reasons why my delivered orders were down in 2020. • Interestingly, while my fee per delivery was actually up a bit in 2020, I was clearly having to work harder for it: My total time "online" (i.e. logged into the Deliveroo Rider App and available to deliver an order) was slightly higher in 2020 compared to 2019 (12 hours 30 minutes, versus 11 hours 15 minutes) but my % of time on a delivery was far lower (39% in 2019 versus 52% in 2019). It might just be that in 2020 I caught fewer orders with longer distances to collect and deliver. Or it might be that Deliveroo's technology has now been configured that way. What's decisive is that my fee per mile on a delivery (collect + deliver) was £3.59 in 2020 - it had been £4 in 2019. 16 March 2020 6 Please see important disclosure information on pages 17 - 22 of this report. EQUITY RESEARCH UK | Internet The data for each of the 14 delivery sessions can be found in the appendix. A summary is given in Exhibit 12. Exhibit 12 - Summary Statistics Deliveroo Deliveroo Uber Eats (2019) (2020) (2020) Total time online (hh:mm) 11:15 12:30 13:31 Total time delivering (hh:mm) 05:48 04:51 06:03 Time spent delivering 51.6% 38.8% 44.8% Total distance travelled while online 49.4 53.7 54.9 Total distance travelled while on delivery (collect+delivery, miles) 22.2 20.6 35.1 Total number of deliveries 25 19 24 Average distance per delivery (collect+delivery, miles) 0.89 1.08 1.46 Deliveries per hour online (actual) 1.1 1.6 1.4 Deliveries per hour online (potential) 4.3 3.9 4.0 Total earnings (excluding tips) £88.68 £74.02 £96.52 Total earnings (including tips) £93.68 £74.02 £99.52 This report is intended for [email protected]. Unauthorized distribution is prohibited. Average fee per delivery £3.86 £3.90 £4.60 Average total earnings per delivery (incl. tip) £4.07 £3.90 £4.74 Earnings per mile travelled on delivery (excl. tip) £4.00 £3.59 £2.75 Average time per delivery (minutes) 13.9 15.3 15.1 Earnings per hour online (actual) £8.33 £5.92 £7.36 Earnings per hour on delivery (actual) £16.15 £15.26 £16.45 Earnings per hour online (potential) £16.15 £15.26 £16.45 . Source: Jefferies Conclusion 6: I earned less per mile cycled on Uber Eats than Deliveroo My total number of Uber Eats orders was higher than Deliveroo 2020 (and almost as high as Deliveroo 2019) but the distances I was travelling for Uber were further. There was one particular occasion, where I was sitting in Hammersmith and had to cycle to Acton to deliver a single portion McDonald's to someone in Chiswick. I travelled a total of 2.8 miles (the average distance was 1.7 miles) for a £3.80 fee. I had to wait 5 minutes at McDonalds for the food and then the drink spilt in my bag. I'm almost certain the consumer would have got a refund. It took me a total of 30 minutes from beginning to end. Across the seven delivery sessions, I earned £7.36 per hour (above Deliveroo 2020) but only £2.75 per mile on a collect+delivery. Earnings per hour on collection + delivery were more comparable between the two platforms. Because of the longer delivery distances on Uber Eats, my earnings per hour online were higher. Conclusion 7: The delivery polygons have been stretched to the operator's benefit In last year's note I made the point that rejecting longer distance orders could be a way to optimise earnings given the compensation structure overweights pick-up and underweights travel distance / time, which results in far higher "earnings per mile" on shorter distance deliveries. Shorter distance also means shorter delivery time, which means I could also pack in more orders during peak hours. The relationship between distance travelled and earnings per mile held as closely in 2020 as it did in 2019, and for Uber Eats too (Exhibit 13). 16 March 2020 7 Please see important disclosure information on pages 17 - 22 of this report. EQUITY RESEARCH UK | Internet Exhibit 13 - Earnings per mile vs. distance travelled £18 Earnings per mile (before tip) Uber Eats (2020) Deliveroo (2019) Deliveroo (2020) Power (Uber Eats (2020)) Power (Deliveroo (2019)) Power (Deliveroo (2020)) £15 £12 £9 £6 £3 £0 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 . Distance travelled (miles) Source: Jefferies I'd make the following additional points: Exhibit 14 - Uber Eats, lunchtime, 19-Feb This report is intended for [email protected]. Unauthorized distribution is prohibited. • Deliveroo is now paying less per mile for shorter delivery distances, and more for longer: In Exhibits 15-16 I have taken the overall yield curve for earnings per mile ridden, but focused on deliveries less than 1 mile. You can see that the earnings in 2020 on these shorter distance orders are lower than in 2019 (comparing the blue line with the green line). Conversely, if we look at the deliveries longer than 1 mile, you can see that Deliveroo is now paying more. If we combine that with the longer average distance I travelled per order (as mentioned above, my average miles travelled per delivery was 1.08 in 2020, from 0.89 in 2019) I was paid less per mile on a delivery in 2020. There have probably been two things: an extraction of economics from rider . to marketplace; and a re-allocation of economics for riders, from short to longer Source: Jefferies distances. This is not a high conviction conclusion given the limited data set. • This was even more pronounced with Uber Eats: It paid the least per mile for short distance deliveries, and the most for long distance deliveries. Not surprisingly, it had the lowest earnings per delivery mile (£2.75) and the longest average distance per delivery (1.46 miles, almost 50% above peers). There was one occasion when I started in The City, got dragged to Southbank, then to Waterloo, then into Westminster and then west to Vauxhall and ultimately Nine Elms (Exhibit 14). I suppose that could have happened on either platform - it depends where you are when you finish your delivery. • Wider delivery polygons? If we look at distribution of delivery+collect distance by marketplace and period of time, there is evidence that Deliveroo has stretched the distance it'll allow a restaurant to market itself and the distance a rider will be allowed to cover - it would make sense for this to have increased if I had changed mode of transport to scooter or car, but I am still the middle-aged man of middling athletic ability on an even more average bike that I was last year. For Uber Eats, we don't have a comparison, but would make the point that it had me travelling the furthest (Exhibit 17). While I don't have insights into how the logistics resource management works, obvious reasons I can think to stretch a delivery polygon are: either rider count has gone down or order count has gone up; or unit rider costs have gone up. 16 March 2020 8 Please see important disclosure information on pages 17 - 22 of this report. EQUITY RESEARCH UK | Internet Exhibit 15 - Earnings per mile vs. distance travelled (<1 mile) Exhibit 16 - Earnings per mile vs. distance travelled (>1 miles) £18 £5 Earnings per mile (before tip) Earnings per mile (before tip) Uber Eats (2020) Uber Eats (2020) Deliveroo (2019) Deliveroo (2019) Deliveroo (2020) Deliveroo (2020) £15 Power (Uber Eats (2020)) £4 Power (Uber Eats (2020)) Power (Deliveroo (2019)) Power (Deliveroo (2019)) £12 Power (Deliveroo (2020)) Power (Deliveroo (2020)) £3 £9 £2 £6 £1 £3 £0 £0 0.0 0.2 0.4 0.6 0.8 1.0 1.0 1.5 2.0 2.5 3.0 3.5 4.0 . Distance travelled (miles) Distance travelled (miles) . Source: Jefferies Source: Jefferies This report is intended for [email protected]. Unauthorized distribution is prohibited. Exhibit 17 - Distribution of orders by collect+delivery distance (miles) 42% 30% 30% 29% 21% 19% 17% 17% 16% 14% 10% 10% 10% 5% 5% 4% 5% 5% 5% 5% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0% 0 - 0.4 0.4 - 0.8 0.8 - 1.2 1.2 - 1.6 1.6 - 2 2 - 2.4 2.4 - 2.8 2.8 - 3.2 3.2 - 3.6 3.6 - 4 Deliveroo (2019) Deliveroo (2020) Uber Eats (2020) . Source: Jefferies Three conclusions on the rider user experience The rider experience is an important and often ignored side of the three-player marketplace. I'm as guilty as the average industry observer on obsessing on the consumer as a priority and then the restaurant as a second consideration. I rarely get round to talking about the rider. Having now spent three weeks as a rider, across two marketplaces, it's clear that the rider's sensibilities are just as important. Every time I step out to grab my lunch and it's raining, I find myself rooting for the riders that have to brave the elements, hoping that it all goes smoothly. Conclusion 8: Deliveroo onboarding is superior to Uber Eats The Uber Eats onboarding process was difficult. It actually took me several months to get approved. I found myself having to repeat processes I thought were already completed (for example, sending in a scan of my passport). There was a strong focus on automation, but that automation was often inflexible: for example, you can only book an onboarding session (to confirm proof of identity) through a dedicated website - the website never had any available slots, and it wasn't clear why that was - so then I had to just randomly log on until I found a slot available. I understand that since I signed up, Uber now allows riders to use the Post Office network for ID verification (which should be much more convenient to new riders). 16 March 2020 9 Please see important disclosure information on pages 17 - 22 of this report. EQUITY RESEARCH UK | Internet Conclusion 9: Deliveroo rider app has a better user experience The Uber Driver app feels like it has been born out of the ride-hailing business. There is no functionality in it that feels optimised for food delivery, in the same way that Deliveroo's is. Here are four examples: • Order numbers: Deliveroo's order numbers are numeric while Uber Eats are alpha- numeric. Within that, there is no pattern in when the letters and numbers appear (such as AAA##) - it's all different possible combinations (#A#A#, or ##A#A). It may sound petty, but when you're collecting food from a busy restaurant, simplicity of communication between rider and restaurant employee counts for quite a lot. Easily memorable 4-digit order numbers, like a bank PIN, are easy to recall for a rider and easy to digest for a restaurant employee. • Order number pop-out: Order numbers within the Uber Eats app are in regular size font in the middle of the screen. Uber actually has the customer's name in larger font than the order number (Exhibit 18) - makes sense if you're a taxi driver picking up a person - but useless if you're a rider picking up a Big Mac. By contrast, the Deliveroo rider app has the order number in bold in the centre of the screen which, if you press This report is intended for [email protected]. Unauthorized distribution is prohibited. and hold it, actually balloons out to fill the entire page - so I could just stand there, like a taxi driver at the airport, holding my order number up for the restaurant to see. Much more efficient. • Restaurants online: This is a new feature for the Deliveroo Rider app in 2020. Well, at least for me - it might well have been launched by Deliveroo in 2019. Either way, the Deliveroo Rider app now lets the rider see restaurants that are online by putting a small purple dot on the map screen (Exhibit 20). For the rider, this was incredibly useful - it allowed me to know where to focus my efforts. Last year, I had literally been cycling around blind as to where the next order could come from - now I could avoid areas where no restaurants were serving and try to position myself in an optimal position to catch a gig (i.e. literally the shortest distance to the front door of as many restaurants as possible). Uber Eats has no such granularity. • Mapping and navigation: This may just be personal preference, and it may be a function of Uber's roots in ride-hailing, but once I had collected the order and was on the road, the Uber Driver app would kick-start a first-person voiced navigation, similar to what Google Maps will do when you're in the car to a novel destination. I much prefer a map screen that has a line from restaurant to consumer, with the map pointing north. With Uber, every single time, I got confused about which direction I was pointing in and needed to go. Uber did give me the option to switch this off but I only learned of the functionality after the event (Deliveroo lets you navigate using its app, or Google Maps or Waze). Deliveroo could also tell that I was riding a bike and not a scooter or a car - it would allow me to go along routes not open to motor vehicles. No such flexibility from Uber Eats. 16 March 2020 10 Please see important disclosure information on pages 17 - 22 of this report. EQUITY RESEARCH UK | Internet Exhibit 18 - Uber Eats, collect order page, Exhibit 19 - Deliveroo, collect order page, Exhibit 20 - Deliveroo rider app, map of Driver app Rider app restaurants online This report is intended for [email protected]. Unauthorized distribution is prohibited. . . . Source: Company data Source: Company data Source: Jefferies Conclusion 10: Deliveroo wait-times were noticeably lower Wait times for the rider are critical. The window in which one makes deliveries is small (a couple of hours for each of breakfast, lunch and dinner) - as a rider I wanted to be out and on a delivery as much as possible. Waiting for 10 minutes, say, for an order is very annoying. In that context, and I'm afraid I didn't habitually measure it, but I'm certain I found myself waiting more for Uber Eats orders than Deliveroo orders. It's important to note that this feedback is anecdotal and unscientific. There could be many reasons why my wait-time was so much higher for Uber Eats orders, including the SLA with the restaurant and the fact that I was on a bike and not a car. Indeed, a lot of the experience comes down to how the franchisee has set up the unit - kudos to McDonald's South Kensington, it has a dedicated delivery counter tucked out of site from the walk-in consumers - better for me and better for the walk-ins (Exhibit 21). By contrast, McDonald's Victoria, I was in a mob of people, backpack and all. Notwithstanding, and all else being equal, I felt my time was being better used when out on a Deliveroo order. Separately, it was interesting to note that Uber Eats would offer me a new order while I was still out on delivery for the current order. This was obviously welcome, as it increased my number of orders - I assume the technology wouldn't have offered me the order if it meant the food preparation time couldn't accommodate the fact that I had to finish a delivery before starting out to the new order restaurant. 16 March 2020 11 Please see important disclosure information on pages 17 - 22 of this report. EQUITY RESEARCH UK | Internet A final comment on rider experience. While delivering for Uber Eats I encountered my first ever dark kitchen - an industrial unit under some rail lines in Vauxhall (Exhibit 22). I'm fairly sure the site was shared with Deliveroo (Deliveroo Editions being now a well- established proposition for restaurants to extend reach and launch virtual brands). What a brutal food delivery dystopia that was! No bells or whistles of any type, just an industrialised food delivery production line, mobbed by riders of all platforms buzzing in and out. Note in Exhibit 23 the six iPads on the wall, presumably accepting orders from all and sundry. Exhibit 21 - McDonald's Kensington (1) Exhibit 22 - Dark kitchen (1) Exhibit 23 - Dark kitchen (2) This report is intended for [email protected]. Unauthorized distribution is prohibited. . . . Source: Jefferies Source: Jefferies Source: Jefferies Regulation of the gig economy remains in the political long grass in the UK Recap on current position The rapid rise of the two main gig economy bastions, Deliveroo and Uber, has precipitated an increasingly confrontational debate in the UK (and elsewhere) as to how the individuals who take on the piecemeal work enabled by those platforms (ie, delivering food and shuttling a passenger from A-to-B) should be classified. For Deliveroo and Uber Eats, the status quo would see it continue to treat its riders as freelance contractors; a change of classification to ‘employee’ would result in higher labour costs (accruing for holiday, sick pay, minimum wage, National Insurance Contributions) and a loss of flexibility (guaranteed hours, notice period for termination etc.). These decisions have material implications for the companies involved. Having written extensively on this topic before as a passive observer, my week as a Deliveroo rider in 2019 afforded me a better informed perspective. Deliveroo and Uber believe that riders and drivers should be classified as freelance. The loudest call for a change in approach has come from the Independent Workers’ Union of Great Britain (IWGB). The IWGB is a newer, smaller union that broke away from the giant unions, Unite and UNISON, in 2012. Its growth has come lockstep with the advent of the gig economy. The IWGB has certainly had some success, most notably with securing higher pay and holiday entitlements for cleaners at the University of London, where the general secretary of the IWGB union, Jason Moyer-Lee, was studying for a PhD in 2013. For almost three years now, Deliveroo has been fending off a challenge from the IWGB that it (the IWGB) has the right to represent a pool of Deliveroo riders in Camden and 16 March 2020 12 Please see important disclosure information on pages 17 - 22 of this report. EQUITY RESEARCH UK | Internet Kentish Town in London (ie, that riders have the right to unionise). If allowed to unionise, the riders could then use collective bargaining to secure basic workers’ rights. The exploitation of riders that the IWGB has highlighted includes: an opaque algorithm for calculating riders’ fees, which creates obfuscation as to why riders appear to have to travel further and further to make the same fee; lack of payment for delays caused by the restaurant (something I can most certainly identify with); and unfair termination of supplier agreements. The IWGB wants riders (and we note it consistently refers to them as ‘workers’) to get a minimum £5 per delivery, paid waiting times at restaurants and customers addresses (17p a minute) and due process for terminations (minimum one month notice period; a right to appeal). The Central Arbitration Committee (CAC), being the independent body with statutory powers that overseas recognition of trade unions, found in favour of Deliveroo in November 2017 (ie, that riders are self-employed). The CAC found that the “substitution right” for riders was genuine, both in paper and in practice. Being unable to send someone else to do your work is a key definition of worker status. The IWGB at the time said that Deliveroo had gamed the system because it had inserted the substitution This report is intended for [email protected]. Unauthorized distribution is prohibited. wording into the “Supplier Agreement” in the weeks leading up to the tribunal hearing. In November 2018, the IWGB appealed to the High Court to have the CAC decision overturned on the grounds of contravention of human rights. It again failed. The general acknowledgement is that employment law in the UK has failed to keep pace with people’s work habits in the modern economy. The IWGB / Deliveroo case is but a single example of many cases that are being put in front of various tiers of the judiciary to clarify what exactly workers’ rights are. Notwithstanding the light the IWGB is throwing onto this matter, there appears to be wide agreement that had the Taylor Review’s recommendations been brought forward into tangible workplace reforms, a lot of the current friction could have been forestalled. We think Brexit is to blame for part of the malaise here. It remains our view that a progressive labour model needs progressive regulation... Having now worked in the gig economy, twice, I remain of the view that a progressive evolution of current labour laws is required: what the gig economy affords UK citizens shouldn’t be stifled by a regressive imposition of existing labour laws. The IWGB’s complaints are not untrue (it is low-paid work with de minimis workers’ rights) but its conviction that there needs to be change is because the IWGB views the gig economy through the prism of traditional working practices and labour laws. Having now worked as a rider, it’s clear to me that what the Deliveroo and Uber Eats marketplaces created is far from normal. Its abnormality emanates from two areas: the absence of any two- way commitments between platform and the rider, and technology-enabled efficiency of allocating gigs: • The work is utterly piecemeal and deeply uneven. There are peak hours and then hours of nothing. Neither platform guaranteed anything, and it had no obligation to as far as I was concerned... • …and that’s because the work is 100% opt-in. I chose when I worked, where I worked and how I worked. Even when I was online, I could still reject orders. I could flip between platforms at will, serving my interests above that of the platform. • I had to provide my own bike but there was no guarantee to Deliveroo and Uber Eats that I would use it. Last year I actually did a delivery by foot in Mayfair. It’s now clear to me that this is a new category of labour that is incremental to the established patterns of work. Being a Deliveroo rider is not a full-time job and Deliveroo 16 March 2020 13 Please see important disclosure information on pages 17 - 22 of this report. EQUITY RESEARCH UK | Internet has never pretended (at least to me) that it would be. It took me an hour cycling around Hammersmith on a cold December morning to realise that if I wanted this to be full-time work, I would need to multi-home on the Just Eat and Uber Eats platforms too. If I was multi-homing, then the argument that I am a Deliveroo employee falls away rapidly. ..and that regulation is still in the political long grass... Since our report last year, we've seen very little to advance the matter in the UK. The Brexit hullabaloo and the December general election have obviously been a distraction. Perhaps things will now change given the UK has withdrawn from the EU and the government has the strong platform of a large parliamentary majority. Certainly the conditions are ripe to advance any ambitious legislative agenda. It's just not my impression that regulation of the gig economy ranks highly. While we've seen the European Parliament introduce legislation to protect gig economy workers (the Jun-2019 ratified, "Transparent and predictable working conditions in the European Union Act", with a 3-year implementation window), the recommendations of the Taylor Review remain in the political long grass in the UK, despite the ongoing lobbying efforts (and I note the arrival of Martha Lane Fox backed, Dotoeveryone, a think tank aiming to This report is intended for [email protected]. Unauthorized distribution is prohibited. "shape our digital world and navigate the moral and ethical issues it presents"). Deliveroo and Uber Eats undoubtedly tread a fine line of public opinion. My position that the gig economy needs a progressive approach has strengthened. The Taylor Review appears to have been lost in the Brexit long grass; the raft of planned measures that was announced on the back of the review in December 2018 left the gig economy alone (much to the chagrin of the IWGB). Should we see the base of riders successfully get the right to unionise, my belief is that Deliveroo / Uber would offset the higher cost of employing that base of riders (following the inevitable Hermes-esque settlements that would follow; see below) through unilateral termination of the surfeit of supplier agreements. My instinct is that Deliveroo / Uber have probably built slack into their rider base to ensure that there remains a critical mass of riders on the street to deliver the food (especially during rain and snow). If resource flexibility becomes stifled by regulation (and cost), Deliveroo / Uber are likely to offset that by truncating the pool of riders. Some riders will gain but many will lose access to the flexible piecemeal work that met their needs perfectly adequately. ...but the next step in labour regulation is sure to be made by an operator, and based on competitive considerations In the sister note out today, "European Online Food Delivery: Back In Vogue" we make the point that Just Eat UK's new owners are sure to assume a well proven playbook to stem market share losses to Deliveroo and Uber Eats. Much of this has already been trailed by management, but for completeness: I expect to see a dropping in delivery fees for Just Eat orders, this will undoubtedly be linked to (indeed, joint-marketed by) Just Eat's major new partners, McDonalds and Greggs; we will see Takeaway's Scoober delivery service rolled out (presumably therefore ditching the current model of Stuart in the major cities and the "Skip" proprietary system everywhere else) and riders offered full employment; and there is sure to be a big commercial push to attract the branded chains that are currently not in the Just Eat marketplace (and Wagamama's in particular comes to mind). The strategy would effectively weaponise Just Eat UK's marketplace gross profit pool to depress UK customer lifetime values and hamper Deliveroo and Uber Eat's marketing efficiency. 16 March 2020 14 Please see important disclosure information on pages 17 - 22 of this report. EQUITY RESEARCH UK | Internet Appendix: Deliveroo 2019 sessions Distance Total time to travelled Single / Accept order Deliver order deliver (incl. pick- Total rider Earnings per Earnings per Order "Zone" Area Date Batch Restaurant (hh:mm) (hh:mm) (hh:mm) up, miles) Speed (mph) Paid to rider Tip earnings mile minute 1472 SBU Hammersmith 20-Dec-18 Single National quality fast food 09:21 chain 09:30 00:09 0.3 2.0 £3.64 £0.00 £3.64 £12.13 £0.40 5240 SBU Hammersmith 20-Dec-18 Single National patisserie chain 09:46 09:58 00:12 1.0 4.8 £3.66 £0.00 £3.66 £3.85 £0.31 4824 SBU Hammersmith 20-Dec-18 Single Major national sandwich 10:39 chain 11:04 00:25 1.4 3.4 £4.14 £0.00 £4.14 £2.96 £0.17 No orders SBU Hammersmith 10-Jan-19 n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a NM NM 6279 SBU Hammersmith 10-Jan-19 Single Independent sit-in burger 11:56 restaurant 12:06 00:10 0.7 4.2 £3.65 £0.00 £3.65 £5.21 £0.37 1797 SBU Hammersmith 10-Jan-19 Single Medium-sized fried chicken 12:15 chain 12:28 00:13 1.2 5.5 £3.85 £0.00 £3.85 £3.21 £0.30 3839 SBU Hammersmith 10-Jan-19 Single Independent Vietnamese 13:03 restaurant 13:15 00:12 1.0 5.0 £3.69 £0.00 £3.69 £3.69 £0.31 2831; 5140 MMS Mayfair 11-Jan-19 Batch High-end French patisserie 11:34 11:54 00:20 0.4 1.2 £5.90 £1.00 £6.90 £14.75 £0.30 9784 EC The City 29-Jan-19 Single Protein shake restaurant 07:56 08:11 00:15 0.6 2.4 £3.65 £0.00 £3.65 £6.08 £0.24 0864 EC The City 29-Jan-19 Single Organic food restaurant 11:39 11:58 00:19 1.4 4.4 £4.09 £1.00 £5.09 £2.92 £0.22 8903 EC The City 29-Jan-19 Single American burger chain11:59 12:15 00:16 1.6 6.0 £3.69 £0.00 £3.69 £2.31 £0.23 5199 EC The City 29-Jan-19 Single National sit-in pizza chain 12:16 12:33 00:17 1.5 5.3 £3.66 £0.00 £3.66 £2.44 £0.22 7076 EC The City 29-Jan-19 Single National pizza chain 12:29 12:56 00:27 0.8 1.8 £3.62 £0.00 £3.62 £4.53 £0.13 6624 EC The City 29-Jan-19 Single Japanese restaurant 12:49 13:07 00:18 0.7 2.3 £3.63 £0.00 £3.63 £5.19 £0.20 1841 EC The City 29-Jan-19 Single National quality fast food 13:07 chain 13:19 00:12 0.8 4.0 £3.62 £0.00 £3.62 £4.53 £0.30 6689 EC The City 29-Jan-19 Single Salad chain 13:21 13:39 00:18 0.6 2.0 £3.62 £0.00 £3.62 £6.03 £0.20 0925 EC The City 29-Jan-19 Single Healthy food chain 13:40 13:42 00:02 0.3 9.6 £3.62 00:00 £3.62 £11.31 £1.81 0527 EC The City 31-Jan-19 Single American burger chain11:42 11:54 00:12 1.8 9.0 £3.64 £0.00 £3.64 £2.02 £0.30 9112 EC The City 31-Jan-19 Single American burger chain11:57 12:15 00:18 0.6 2.0 £3.69 £0.00 £3.69 £6.15 £0.21 1192 EC The City 31-Jan-19 Single Independent sit-in burger aborted restaurantaborted n/a n/a n/a n/a n/a n/a n/a n/a 5126 EC The City 31-Jan-19 Single Organic food restaurant 12:34 12:50 00:16 1.3 4.9 £4.88 £0.00 £4.88 £3.75 £0.31 0675 EC The City 31-Jan-19 Single Healthy food chain 12:51 13:10 00:19 1.6 5.1 £3.84 £3.00 £6.84 £2.40 £0.20 9187 EC The City 31-Jan-19 Single American burger chain13:11 13:25 00:14 1.3 5.6 £3.66 £0.00 £3.66 £2.82 £0.26 8403 EC The City 31-Jan-19 Single American burger chain13:26 13:41 00:15 1.0 4.0 £3.63 £0.00 £3.63 £3.63 £0.24 . This report is intended for [email protected]. Unauthorized distribution is prohibited. 2574 EC The City 31-Jan-19 Single Thai restaurant 13:43 13:52 00:09 0.3 2.0 £3.61 £0.00 £3.61 £12.03 £0.40 Appendix: Deliveroo 2020 sessions Distance Total time to travelled Single / Accept order Deliver order deliver (incl. pick- Total rider Earnings per Earnings per Order Number "Zone" Area Date Batch Restaurant (hh:mm) (hh:mm) (hh:mm) up, miles) Speed (mph) Paid to rider Tip earnings mile minute 0005 EC The City 28-Jan-20 Single Quick service salad restaurant 11:50 12:00 00:10 0.7 4.2 £3.84 £0.00 £3.84 £5.49 £0.38 0673 EC The City 28-Jan-20 Single Local Middle Eastern restaurant 12:12 12:25 00:13 1.1 5.1 £3.83 £0.00 £3.83 £3.48 £0.29 1201 EC The City 28-Jan-20 Single Small-sized Asian chain 12:36 12:52 00:16 0.7 2.6 £3.62 £0.00 £3.62 £5.17 £0.23 6562 EC The City 28-Jan-20 Single Cantonese restaurant 12:53 chain 13:08 00:15 1.8 7.2 £4.04 £0.00 £4.04 £2.24 £0.27 1957 EC The City 28-Jan-20 Single Quick service salad restaurant 13:18 13:24 00:06 0.2 2.0 £3.29 £0.00 £3.29 £16.45 £0.55 2404 EC The City 29-Jan-20 Single Healthy food QSR 07:59 08:11 00:12 0.8 4.0 £3.50 £0.00 £3.50 £4.38 £0.29 8281 EC The City 29-Jan-20 Single Healthy sandwiches restaurant 08:38 08:57 00:19 1.5 4.7 £3.87 £0.00 £3.87 £2.58 £0.20 1716 EC The City 29-Jan-20 Single Fast food burger chain08:59 09:20 00:21 0.7 2.0 £3.43 £0.00 £3.43 £4.90 £0.16 7211 EC The City 29-Jan-20 Single National quality fast food 09:35 chain 09:53 00:18 0.4 1.3 £3.40 £0.00 £3.40 £8.50 £0.19 5898 EC The City 29-Jan-20 Single Mexican franchise chain 11:56 12:07 00:11 0.7 3.8 £3.29 £0.00 £3.29 £4.70 £0.30 7079 EC The City 29-Jan-20 Single Organic food restaurant 12:11 12:27 00:16 1.9 7.1 £4.02 £0.00 £4.02 £2.12 £0.25 8391 EC The City 29-Jan-20 Single Gourmet restaurant 12:50 13:17 00:27 0.2 0.4 £3.25 £0.00 £3.25 £16.25 £0.12 9845 EC The City 29-Jan-20 Single American burger chain13:19 13:31 00:12 0.2 1.0 £3.17 £0.00 £3.17 £15.85 £0.26 5482 EC The City 29-Jan-20 Single Organic food restaurant 13:36 13:54 00:18 0.7 2.3 £3.45 £0.00 £3.45 £4.93 £0.19 1717 SBU Hammersmith 30-Jan-20 Single Major national sandwich 08:09 chain 08:28 00:19 2.1 6.6 £5.44 £0.00 £5.44 £2.59 £0.29 8437 SBU Hammersmith 30-Jan-20 Single Café house 08:38 08:56 00:18 1.9 6.3 £5.19 £0.00 £5.19 £2.73 £0.29 n/a SBU Hammersmith 30-Jan-20 Single n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a 7299 SBU Hammersmith 4-Feb-20 Single Bakery 08:19 08:35 00:16 3.6 13.5 £6.02 £0.00 £6.02 £1.67 £0.38 9864 SBU Hammersmith 4-Feb-20 Single Mexican franchise chain 12:21 12:34 00:13 0.7 3.0 £3.67 £0.00 £3.67 £5.65 £0.28 . 1473 SBU Hammersmith 4-Feb-20 Single Cheese QSR 12:49 13:00 00:11 0.8 4.1 £3.70 £0.00 £3.70 £4.93 £0.34 Appendix: Uber Eats 2020 sessions Distance Total time to travelled Single / Accept order Deliver order deliver (incl. pick- Total rider Earnings per Earnings per Order Number "Zone" Area Date Batch Restaurant (hh:mm) (hh:mm) (hh:mm) up, miles) Speed (mph) Paid to rider Tip earnings mile minute A004C SBU Hammersmith 31-Jan-20 Single American burger chain08:22 08:34 00:12 1.8 9.1 £5.17 £0.00 £5.17 £2.86 £0.43 78F5D SBU Hammersmith 31-Jan-20 Single American burger chain09:33 09:43 00:10 0.7 4.1 £2.62 £0.00 £2.62 £3.85 £0.26 92533 SBU Hammersmith 3-Feb-20 Single American burger chain09:01 09:26 00:25 2.8 6.7 £3.80 £0.00 £3.80 £1.35 £0.15 835DD SBU Hammersmith 3-Feb-20 Single Café house 12:24 12:46 00:22 3.0 8.1 £6.45 £2.00 £8.45 £2.18 £0.29 0EE0D SBU Hammersmith 3-Feb-20 Single American burger chain12:57 13:10 00:13 0.6 2.6 £3.32 £0.00 £3.32 £5.93 £0.26 C2609 SBU Hammersmith 3-Feb-20 Single American burger chain13:44 13:48 00:04 0.9 13.2 £3.34 £0.00 £3.34 £3.80 £0.83 6E308 EC The City 6-Feb-20 Single Café house 07:56 08:15 00:19 1.2 3.8 £4.62 £0.00 £4.62 £3.82 £0.24 793D5 EC The City 6-Feb-20 Single Café house 08:27 08:36 00:09 0.5 3.3 £4.02 £0.00 £4.02 £8.04 £0.45 E85A0 EC The City 6-Feb-20 Single American burger chain08:48 09:09 00:21 0.8 2.1 £4.08 £0.00 £4.08 £5.44 £0.19 02C0B, CD277 EC The City 6-Feb-20 Batched American burger chain09:23 09:44 00:21 2.1 5.9 £7.73 £0.00 £7.73 £3.73 £0.37 715D5 EC The City 6-Feb-20 Single Asian food chain 12:25 12:43 00:18 2.0 6.5 £4.74 £0.00 £4.74 £2.42 £0.26 73C16 EC The City 6-Feb-20 Single Chicken food chain 12:59 13:24 00:25 0.6 1.4 £3.32 £0.00 £3.32 £5.53 £0.13 6147E, 618CB EC The City 18-Feb-20 Batched National quality fast food 11:52 chain 12:05 00:13 1.4 6.5 £4.76 £0.00 £4.76 £3.40 £0.37 9F6C0 EC The City 18-Feb-20 Single Chicken food chain 12:32 12:51 00:19 2.2 6.8 £5.56 £0.00 £5.56 £2.57 £0.29 ADA49 EC The City 18-Feb-20 Single Local Asian tea house13:04 13:29 00:25 3.6 8.6 £6.71 00:00 £6.71 £1.87 £0.27 4B7CA EC The City 19-Feb-20 Single American burger chain11:20 11:32 00:12 0.5 2.5 £2.97 £0.00 £2.97 £5.94 £0.25 7C4FE EC The City 19-Feb-20 Single Asian food chain 11:56 12:11 00:15 1.8 7.0 £2.95 £0.00 £2.95 £1.69 £0.20 A0B3B EC The City 19-Feb-20 Batched Chicken food chain 12:12 12:36 00:24 3.8 9.5 £7.16 £0.00 £7.16 £1.88 £0.30 5FAF2 EC The City 19-Feb-20 Single American burger chain12:47 13:00 00:13 1.1 4.9 £3.68 £0.00 £3.68 £3.44 £0.28 0D2F3 EC The City 19-Feb-20 Single Hot dog chain 13:01 13:25 00:24 1.9 4.8 £3.85 £0.00 £3.85 £1.99 £0.16 . C9FB1 EC The City 19-Feb-20 Single Middle Eastern restaurant 13:33 13:52 00:19 2.1 6.6 £5.67 £1.00 £6.67 £2.73 £0.30 Appendix: how delivery fares are calculated Uber Eats The below has been lifted verbatim from the Uber Eats driver portal. 16 March 2020 15 Please see important disclosure information on pages 17 - 22 of this report. EQUITY RESEARCH UK | Internet "Fares for delivery trips are passed on to you weekly and will show on your payment statement as "Delivery". The delivery trip fare you see at the end of a delivery is calculated by adding together: • Pickup: A fixed fee for pickup at the restaurant. • Drop off: A fixed drop-off fee for each drop off location. • Distance traveled: A per-mile rate for the total distance you travel from pickup to trip completion. (We base this on the total distance of the route displayed in the app when you tap Navigate.) Let's do the math: For example, if you deliver a meal from a restaurant to the drop off location, with a distance of 5.2 miles, the base fare would be calculated like this: £1.40 pickup + £1.50 x 5.2 miles + £1.10 drop off = £10.30 delivery fare Fees and distance rates will differ depending on what type of vehicle you deliver with and the city you're delivering in. Your total payout for the fare will depend on the applicable Uber service fee. If your city has a 35% service fee, your total payout would be £6.70 in our above example. The Uber service fee varies depending on the delivery city and mode of delivery This report is intended for [email protected]. Unauthorized distribution is prohibited. (car, bike or scooter). For Boost trips, the boost multiplier will be added on top of the net payout. In addition to the pickup fee and distance rate, for trips where you pick up 2 or more orders in one stop, you will also earn an additional drop-off fee for each delivery". Deliveroo The below has been lifted verbatim from my Deliveroo supplier agreement. Deliveroo will pay you a delivery fee (“Delivery Fee”) for each completed delivery. 4.2 Any Delivery Fee offered to you in accordance with 4.1 will be confirmed in advance in writing by Deliveroo. A completed delivery for these purposes is the collection of Order Items from a Partner and delivery to a customer. 4.3 If you provide the Services by car, scooter or motorbike, you will also be entitled to a petrol allowance calculated in the following manner: (1) Deliveroo estimates the distance driven by you based on GPS co-ordinates; (2) Deliveroo assumes an 18km/litre fuel economy standard; (3) Deliveroo assumes a price per litre of petrol as notified to you depending on local market considerations. 4.4 You will be paid based on an invoice. Deliveroo shall prepare a draft invoice, on a fortnightly basis (or on termination of this Agreement), in respect of Services provided by you or your substitute in the previous fortnight. Deliveroo shall pay your invoice by electronic transfer to your nominated bank account. Deliveroo provides this invoicing service to you free of charge for ease of administration but, if you would prefer to create and submit your own invoices, you should contact Rider Operations. 4.5 You should keep any tips or gratuities paid to you directly by any of Deliveroo’s customers in respect of Services provided by you under this Agreement. 4.6 As a self-employed supplier you are responsible for accounting for and paying any tax and national insurance due in respect of sums payable to you under or in connection with this Agreement. You will inform Deliveroo of your tax reference number on request. 16 March 2020 16 Please see important disclosure information on pages 17 - 22 of this report. EQUITY RESEARCH UK | Internet Company Valuation/Risks Delivery Hero AG Valuation: DCF based, supported by multiples. Risks: aggressive competition, gig economy regulation. Just Eat Takeaway.com NV Valuation: DCF based, supported by multiples. Risks: aggressive competition, gig economy regulation. Analyst Certification: I, Giles Thorne, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. I, Sebastian Patulea, CFA, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this research report. Registration of non-US analysts: Giles Thorne is employed by Jefferies International Limited, a non-US affiliate of Jefferies LLC and This report is intended for [email protected]. Unauthorized distribution is prohibited. is not registered/qualified as a research analyst with FINRA. This analyst(s) may not be an associated person of Jefferies LLC, a FINRA member firm, and therefore may not be subject to the FINRA Rule 2241 and restrictions on communications with a subject company, public appearances and trading securities held by a research analyst. Registration of non-US analysts: Sebastian Patulea, CFA is employed by Jefferies International Limited, a non-US affiliate of Jefferies LLC and is not registered/qualified as a research analyst with FINRA. This analyst(s) may not be an associated person of Jefferies LLC, a FINRA member firm, and therefore may not be subject to the FINRA Rule 2241 and restrictions on communications with a subject company, public appearances and trading securities held by a research analyst. As is the case with all Jefferies employees, the analyst(s) responsible for the coverage of the financial instruments discussed in this report receives compensation based in part on the overall performance of the firm, including investment banking income. We seek to update our research as appropriate, but various regulations may prevent us from doing so. Aside from certain industry reports published on a periodic basis, the large majority of reports are published at irregular intervals as appropriate in the analyst's judgement. Investment Recommendation Record (Article 3(1)e and Article 7 of MAR) Recommendation Published March 16, 2020 , 20:09 ET. Recommendation Distributed March 16, 2020 , 20:09 ET. Recommendation Recalled March 16, 2020 , 20:18 ET. Recalled Recommendation Distributed March 16, 2020 , 20:18 ET. Explanation of Jefferies Ratings Buy - Describes securities that we expect to provide a total return (price appreciation plus yield) of 15% or more within a 12-month period. Hold - Describes securities that we expect to provide a total return (price appreciation plus yield) of plus 15% or minus 10% within a 12-month period. Underperform - Describes securities that we expect to provide a total return (price appreciation plus yield) of minus 10% or less within a 12-month period. The expected total return (price appreciation plus yield) for Buy rated securities with an average security price consistently below $10 is 20% or more within a 12-month period as these companies are typically more volatile than the overall stock market. For Hold rated securities with an average security price consistently below $10, the expected total return (price appreciation plus yield) is plus or minus 20% within a 12-month period. For Underperform rated securities with an average security price consistently below $10, the expected total return (price appreciation plus yield) is minus 20% or less within a 12-month period. NR - The investment rating and price target have been temporarily suspended. Such suspensions are in compliance with applicable regulations and/or Jefferies policies. CS - Coverage Suspended. Jefferies has suspended coverage of this company. NC - Not covered. Jefferies does not cover this company. 16 March 2020 17 Please see important disclosure information on pages 17 - 22 of this report. EQUITY RESEARCH UK | Internet Restricted - Describes issuers where, in conjunction with Jefferies engagement in certain transactions, company policy or applicable securities regulations prohibit certain types of communications, including investment recommendations. Monitor - Describes securities whose company fundamentals and financials are being monitored, and for which no financial projections or opinions on the investment merits of the company are provided. Valuation Methodology Jefferies' methodology for assigning ratings may include the following: market capitalization, maturity, growth/value, volatility and expected total return over the next 12 months. The price targets are based on several methodologies, which may include, but are not restricted to, analyses of market risk, growth rate, revenue stream, discounted cash flow (DCF), EBITDA, EPS, cash flow (CF), free cash flow (FCF), EV/EBITDA, P/E, PE/growth, P/CF, P/FCF, premium (discount)/average group EV/EBITDA, premium (discount)/ average group P/E, sum of the parts, net asset value, dividend returns, and return on equity (ROE) over the next 12 months. Jefferies Franchise Picks Jefferies Franchise Picks include stock selections from among the best stock ideas from our equity analysts over a 12 month period. Stock selection is based on fundamental analysis and may take into account other factors such as analyst conviction, differentiated analysis, a favorable risk/reward ratio and investment themes that Jefferies analysts are recommending. Jefferies Franchise Picks will include only Buy rated stocks and the number can vary depending on analyst recommendations for inclusion. Stocks will be added as new opportunities arise and removed when the reason for inclusion changes, the stock has met its desired This report is intended for [email protected]. Unauthorized distribution is prohibited. return, if it is no longer rated Buy and/or if it triggers a stop loss. Stocks having 120 day volatility in the bottom quartile of S&P stocks will continue to have a 15% stop loss, and the remainder will have a 20% stop. Franchise Picks are not intended to represent a recommended portfolio of stocks and is not sector based, but we may note where we believe a Pick falls within an investment style such as growth or value. Risks which may impede the achievement of our Price Target This report was prepared for general circulation and does not provide investment recommendations specific to individual investors. As such, the financial instruments discussed in this report may not be suitable for all investors and investors must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Past performance of the financial instruments recommended in this report should not be taken as an indication or guarantee of future results. The price, value of, and income from, any of the financial instruments mentioned in this report can rise as well as fall and may be affected by changes in economic, financial and political factors. If a financial instrument is denominated in a currency other than the investor's home currency, a change in exchange rates may adversely affect the price of, value of, or income derived from the financial instrument described in this report. In addition, investors in securities such as ADRs, whose values are affected by the currency of the underlying security, effectively assume currency risk. Other Companies Mentioned in This Report • Delivery Hero AG (DHER GR: €60.14, BUY) • Just Eat Takeaway.com NV (JET LN: £59.00, BUY) Rating and Price Target History for: Delivery Hero AG (DHER GR) as of 03-13-2020 08/08/2017 I:BUY:€33.00 01/08/2018 BUY:€39.50 06/08/2018 BUY:€46.50 09/28/2018 BUY:€50.00 05/03/2019 BUY:€55.00 90 80 70 60 50 40 30 20 Q1 Q2 Q3 2018 Q1 Q2 Q3 2019 Q1 Q2 Q3 2020 07/04/2019 BUY:€60.00 11/15/2019 BUY:€65.00 16 March 2020 18 Please see important disclosure information on pages 17 - 22 of this report. EQUITY RESEARCH UK | Internet Rating and Price Target History for: Just Eat Takeaway.com NV (JET LN) as of 03-13-2020 01/08/2018 HOLD:£48.00 06/08/2018 HOLD:£51.00 01/25/2019 HOLD:£59.00 05/03/2019 HOLD:£70.00 10,000 8,000 6,000 4,000 2,000 0 Q1 Q2 Q3 2018 Q1 Q2 Q3 2019 Q1 Q2 Q3 2020 Notes: Each box in the Rating and Price Target History chart above represents actions over the past three years in which an analyst initiated on a company, made a change to a rating or price target of a company or discontinued coverage of a company. Legend: I: Initiating Coverage This report is intended for [email protected]. Unauthorized distribution is prohibited. D: Dropped Coverage B: Buy H: Hold UP: Underperform Distribution of Ratings Distribution of Ratings IB Serv./Past12 Mos. JIL Mkt Serv./Past12 Mos. Count Percent Count Percent Count Percent BUY 1264 53.31% 113 8.94% 10 0.79% HOLD 945 39.86% 34 3.60% 5 0.53% UNDERPERFORM 162 6.83% 1 0.62% 0 0.00% 16 March 2020 19 Please see important disclosure information on pages 17 - 22 of this report. EQUITY RESEARCH UK | Internet Other Important Disclosures Jefferies does business and seeks to do business with companies covered in its research reports, and expects to receive or intends to seek compensation for investment banking services among other activities from such companies. As a result, investors should be aware that Jefferies may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. 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