Questor: food delivery apps will change the way we eat. This is the one to invest in

Questor share tip: food apps have grown quickly but still barely scratched the surface of opportunities. We select the pick of the bunch

A Foodora delivery cyclist photographed on a street in Berlin, Germany in 2017
Foodora is part of Berlin-based company Delivery Hero, one of Europe's largest internet start-ups Credit: Reuters

Food delivery apps are poised to change the way we eat, the way Amazon has changed the way we shop.

They are, in other words, formidable “disrupters” – the subject of a new Questor series that will appear here from time to time on companies that are changing the economy profoundly and making their investors, we hope, richer in the process.

The capabilities of the food delivery apps are evolving and broadening at great speed. When they appeared at around the turn of the millennium they did little more than modernise the old-fashioned way to order a takeaway: you looked at a printed menu from a local outlet and phoned through your order. Making this process digital offered more choice, efficiency and speed.

But, as often with digital disruption, what starts as an improvement to the way an existing part of the economy works ends up changing that sector almost beyond recognition.

First the takeaway apps added their own delivery capability, which meant customers could order from restaurants that did not offer delivery and get quicker and more reliable service. They added features such as GPS tracking so that you could see just how far away your curry or pizza was.

Some restaurants are responding by saying to themselves: if we are now cooking for customers in their own home, do we need these large and expensive premises on busy town centre streets? The more enterprising ones now cater to takeaway customers from “dark kitchens” that may occupy cheap real estate in industrial parks, perhaps just from shipping containers.

The huge amounts of data the apps collect allow them to predict ordering patterns, so restaurants can tailor their ingredient orders more precisely and cut waste and hence costs. The combined effect is a greater choice of food at more competitive prices, delivered quickly. This encourages customers to order more often.

The head of Naspers, one of the world’s most successful technology investment firms, has said: “The notion that people gather a bunch of ingredients from a shop and put things together three times a day, 30 times a month – that’s not the way things are going to work any more.”

Even this is not the end of the disruption story. Delivery apps are starting to rival traditional sources of groceries by offering quick delivery of essentials – a kind of digital equivalent of convenience stores. Again, efficiencies and the chance to use “dark stores” sited in cheap locations can keep costs competitive. It’s also quick and flexible: Delivery Hero, for example, aims to get orders to customers in 25 minutes.

Margins among the apps are currently sky-high: often north of 40pc. Could they be maintained as the sector matures? Customers want choice, speed and value. A newcomer would need to sign up thousands of restaurants to rival the incumbents’ range and millions of customers to get the scale that enables competitive operation.

Even Amazon gave up on its attempts to break into the market in Britain. The established players also keep their brands in the public’s mind by advertising on a scale that rivals traditional consumer goods firms.

Which is the best app to invest in? Questor advised readers to sell Just Eat last year and there are good reasons to favour its German-based rival Delivery Hero instead. The latter focuses on markets in Asia and South America, where the culture of ordering takeaways is much stronger than in Just Eat’s European heartlands.

Delivery Hero currently makes a loss but one investor, Kartik Kumar of the Artemis Alpha investment trust, pointed out that while its marketing spending did not amount to investment in the strict sense of the acquisition of physical assets, it arguably produced something of more long-term value than a factory or machinery: customers whose loyalty could be expected to last many years.

Disruptive technology companies are often valued relative to sales rather than profits, a practice that arouses cynicism in some quarters. But what matters is the margin that a firm can hope to make on its sales once it matures.

If Delivery Hero can make even 30pc, its valuation of seven times sales translates into a multiple of operating earnings of about 20 – hardly expensive for a business that is changing the world.

Questor says: buy

Ticker: ETR: DHER

Share price at close: €91.34

Read the latest Questor column on telegraph.co.uk every Sunday, Tuesday, Wednesday, Thursday and Friday from 6am.