#43 - Learning Medley: Food Delivery markets, legendary investor Nick Sleep’s focus, Charlie Songhurst’s learnings from angel investing.
July 7, 2020: High level look at the food delivery market with my ramblings, thoughts from reviewing my notes on Nomad Investment’s Nick Sleep, and learnings from Invest Like The Best interview with Charlie Songhurst on his learnings from angel investing in ~500 companies.
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Episode Notes:
Food Delivery + Uber/Postmates
Est. US market share by sales as of May 2020: DoorDash @ 45%, Uber+Postmates @ 30%, Grubhub+Just Eat Takeaway at 23% (source)
As of 2019, Dominos has 39% of
Uber acquired Postmates in a $2.65b all-stock deal. No cash, and possibly no path to FCF?
Though Uber and DoorDash compete in the wider food delivery market, they have distinctly different strategies. Uber delivers to 750+ global cities with a focus on metropolitan cities (probably due to the ride sharing focus) while Doordash services 4,000+ cities in only 3 countries, leading to dominating small/rural cities. This was crucial in DoorDash establishing its share of the market early on (according to Sarah Tavel of Benchmark).
Ubereats pulled out of South Korea (4th largest food delivery market) from failing to compete with Baedal Minjok’s 75% market share. Baedal Minjok (owned by Woowa Brothers) was acquired in late 2019 by Delivery Hero, which also controls 70% of the Middle East.
Just Eat Takeaway dominates Western Europe’s major markets (UK and Germany) and the Grubhub acquisition gives them a position in the US but it’s possible a localized strategy to culturally similar markets (like DoorDash and Baedal Minjok’s strategy) may be required instead of a “major cities” strategy that Ubereats is deploying. It’s nice to tilt our perspectives outside the US for a second.
From 2010 to 2020, Dominos Pizza's ($DPZ) share price had a CAGR of ~40%. It’s also grown its gross margin at a CAGR of ~3% over the same period to ~39% in 2019. A pizza franchise operation that’s built a beautiful supply chain. This efficient process might have a chance to improve further as Richard Allison, CEO of Dominos, notes real estate opportunities that weren’t available before are possible now.
Nick Sleep of Nomad Investments / Marathon Asset Management
Invest in ideas/models/companies you can understand: “In the office we have a white board on which we have listed the (very few) investment models that work and that we can understand. Costco is the best example we can find of one of them: Scale Efficiencies Shared. Most companies pursue scale efficiencies, but few share them. It’s the sharing that makes the model so powerful. But in the centre of the model is a paradox: the company grows through giving more back. We often ask companies what they would do with windfall profits, and most spend it on something or other, or return the cash to shareholders. Almost no-one replies ‘give it back to customers’ - how would that go down with Wall Street? That is why competing with Costco is so hard to do. The firm is not interested in today’s static assessment of performance. It is managing the business as if to raise the probability of long term success.”
Sleep’s consistently had a portfolio of <10 businesses. Many with a focused theme of shared economies of scale and consumer oriented businesses. Thinking about his investments in Amazon, Costco, Ocado, Asos, Games Workshop… these factors come to mind.
Charlie Songhurst – Lessons from Investing in 483 Companies
An uncommon opinion for entrepreneurs: Studying failures to avoid the common pitfalls. The focus is to survive and do the best you can do survive. Given the low survival rate of startups, the survival mentality is key. I think this could be applied to public equity investing as well. To avoid blow ups, there are obvious things one needs to avoid. Things like excessive leverage, excessive concentration (i.e. 1 stock), failure to realize you cannot possibly know as much as insiders, to ever have a thesis based on market timing, buying shitty companies, partnering with sketchy management. As Munger says, if you know where you would die then you can just avoid that place.
Xero. The accounting software company based in New Zealand. An arbitrage given the location of the public stock listing.
Talent arbitrage by location. Looking at how non-silicon valley companies can have an advantage to untapped talent pools in various parts of the world. Reminds me of Shopify in Canada, Atlassian in Australia and Wix in Israel. As talent becomes more globally viewed thanks to the cascading move to remote, this geographic arbitrage could be competed away.
The adoption of new technology by the old out of constraints from COVID. If we had historically since slow adoption/growth as new generations who grow up with a certain technology end up using it extensively over a period of time…. We are in a period where the old generation may have rapidly adopted the technology of the new generation… greatly increasing usage in a short period of time.
Boring & Complex. The quadrant where there is a scarcity of smart entrepreneurs tackling problems where the utility surplus could have high economic surplus capture. Think accounting softwares, trucking logistics, enterprise SaaS.
An observation that empathetic founders tend to build consumer-focused businesses and logic/quant-minded founders build enterprise businesses. Worthy to think about how this impacts oneself as an investor as well.