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Delivering on Advertising: Uber, Just Eat and Other Retail-Adjacent Media Take Share of Ad Spend
Retail media and other adjacent sellers are capturing a growing share of advertising budgets. Most prominent among the adjacent group is Uber, who reported second quarter results on Tuesday, posting an annualized “run-rate” of $650+ million in ad revenue during the quarter (or more than $162.5 million), equivalent to around 1% of the nearly $16 billion of transaction volumes realized by its delivery segment. The company is on track towards $600-$700 million in ad revenue for all of 2023, up from under $400 million last year.
At 1% of delivery segment transaction volumes, Uber is seeing a similar share as we can see in results from European-skewed competitor Just Eat, whose business is experiencing similar growth and who is on pace towards more than 200 million euros of advertising revenue this year. As Doordash was later to start building out its advertising sales operation (and putting aside that Uber is able to develop advertising assets beyond its food delivery apps), with transaction volumes of similar size, one could imagine that before long Doordash’s advertising business will be comparable in scale to Uber’s.
With a reference point based on disclosures from China’s Meituan prior to last year which showed that a large scale food delivery service can generate 6% of revenue from advertising, there’s an argument to be made that this is the right benchmark to consider when thinking about how much ad revenue might go to delivery apps. However, I doubt it will be quite this high. For historical reference, the most recent year for which we have economy-wide data in the US (2019) shows that food services and drinking establishments allocated only 1.7% of their receipts to all forms of advertising, and a brief review of ad spending from the world’s largest quick service restaurant chains shows advertising expenses as a percentage of sales to be relatively stable since then.
It’s plausible that this share would be much higher for restaurants who depend disproportionately on delivery apps, but on average it would probably only be higher by a modest amount given the cost pressures that restaurants tend to face. Shifts of ad revenue from non-endemic marketers – packaged goods companies in particular – will also contribute meaningfully to delivery services advertising revenues, raising ad revenues as a percentage of transaction volumes further, but also representing another drag on growth for traditional media companies.
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