COVID-19 means more people are having food and booze home delivered — and these small cap stocks will benefit
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A tsunami of consumers will get food and drink delivered to their front door as a result of the ongoing COVID-19 pandemic.
A world in lockdown means this change has happened fast—so fast that some online fresh produce delivery businesses like Coles and Woolies are having difficulty keeping up with demand.
The smaller online home delivery stocks are already doing pretty well in the current environment. On example is Marley Spoon (ASX:MMM), a company that supplies meal kits to your front door.
The stock had been struggling for market traction, down 83 per cent since its 2018 IPO.
Then, in March, the stock jumped 208 per cent after global lockdowns caused “an unprecedented surge in demand for Marley Spoon’s home delivered meal kits in all our markets”.
“Q1 2020 revenue is expected to be above €42m (~$75.5m), showing accelerating growth of more than +40 per cent year-on-year compared to Q1 2019, with only the last two weeks of March showing the benefits of the recent surge in demand,” the company said.
Rolf Weber, managing director for Marley Spoon Australia, says that the company has “significant capacity reserves” to deal with the strong growth as a result of this unprecedented global event, in Australia and in the other regions it operates in.
“Establishing an end-to-end supply chain like Marley Spoon is incredibly difficult,” he told Stockhead in March.
“We’ve spent years building and evolving our supply chain to provide customers with consistent and reliable food deliveries every day.
“The supply chains we have set up are well suited for situations like the one we’re currently facing.”
Dragontail Systems’ (ASX:DTS) Algo Platform “manages the entire food preparation process from order to delivery” for a growing number of food companies (Pizza Hut) and third party delivery operators (DoorDash) around the world.
On March 31 is announced a sharp increase in deliveries through the platform.
“A total of more than 1.35m deliveries across all markets were processed through the Algo Platform during March 2020, 73 per cent more than March 2019,” the company says.
“The platform’s scalability enables a necessary solution during the current coronavirus global crisis, providing a strong and valid foundation for continued effective operations for Dragontail’s customers’ stores.”
It’s not just food. With a collapse in both cellar door visitors and sales via restaurants and bars, wineries will have to rely heavily on online sales to survive the next 6 or 12 months.
Digital Wine Ventures (ASX:DW8) chief exec Dean Taylor says while it offers a business-to business delivery service – previously its flagship — “at the moment the majority of the orders we process are home deliveries for wineries”.
In terms of delivery logistics, Taylor says it has a partnership with Australia Post — “an essential service that needs to be maintained during this crisis”.
A March 24 update confirmed that WINEDEPOT is on track to process a record number of orders in March from consumers getting their booze home delivered. An updated revenue guidance was not provided.
This volume could increase even more as the entire hospitality industry including pubs, clubs, nightclubs, restaurants, casinos and cinemas close due to the shutdown of non-essential services.
“Through our partnership with Australia Post, WINEDEPOT has plenty of latent capacity available,” Taylor told Stockhead in March.
“Our platform and depot network has been designed specifically to scale. I expect we’ll be making the most of that over the coming 12 months.”
Online purchasing more generally has been steadily growing for many years, Taylor says. The current environment will “take it to an entirely new level”.
“People who have resisted buying online until now realise how easy and convenient it is and they’ll never turn back,” he says.
Supply chain expert Rob O’Byrne, owner and chief exec of Logistics Bureau Group, says only the most optimistic scenarios see ‘brick and mortar’ retailers going back to normal operations any time soon.
It’s a moving target “but you have to be very optimistic to say things will be back to normal in anything under 3 to 4 months — it’s probably going to be a lot longer,” he told Stockhead in March.
Does that mean we could see other small cap retailers – across all product lines — turning to home delivery to offset the fall in foot traffic? O’Byrne says yes, but home delivery systems are not something a company can establish overnight.
“The big guys [like Coles, Woolworths] have very well-established home delivery services,” he says.
“Big truck fleets, [warehouses], systems, planning tools. It’s tough for companies that don’t have those in place already.
“The first challenge would be how they take orders. Companies would have to adopt some sort of online order management system very quickly. Then if its food delivery, they need to find people with suitable vehicles to work for you. It would require a rapid and coherent ramp up.”