Executive summary

Business overview

Demae-can business: The company operates Demae-can, a food delivery website for restaurants. Under its Demae-can business, the company operates a dedicated online platform through which consumers looking for speedy home delivery service (in as little as 20 minutes) can order food from affiliated restaurants. The company offers an outsourced delivery platform, Sharing Delivery, for restaurants without their own delivery infrastructure. Since Q3 FY08/20, amid a tough climate for the restaurant industry due to the COVID-19 outbreak, the company has grown revenue sharply by responding to demand for delivery from restaurants and consumers and investing aggressively. FY08/21 revenue was JPY29.0bn (+181.5% YoY). However, the company posted operating loss of JPY17.9bn for the year (versus loss of JPY2.6bn in FY08/20) due to marketing and other upfront spending. The Demae-can business accounted for roughly 98% of revenue in FY08/21, and the company only operates in Japan.

Outsourced delivery platform (Sharing Delivery): The company is moving forward with a hybrid system in which it secures delivery infrastructure by establishing delivery bases (Sharing Delivery bases) while outsourcing deliveries to companies and individuals during peak hours to suppress fixed costs. The company manages its Sharing Delivery bases directly and in partnership with other companies. It distinguishes itself with efficient, quality delivery services that set it apart from its main competitor Uber Technologies, Inc. (NYSE: UBER). The company covered 56% of households in Japan as of end-FY08/21, and about 31% of gross merchandise volume (GMV) was from Sharing Delivery services (69% was from affiliates’ own deliveries).

Key Performance Indicators: The company discloses several key performance indicators that it watches closely: GMV (JPY162.7bn in FY08/21, +58.4% YoY), number of orders (60.3mn, +62.7% YoY), number of affiliated restaurants (84,000, +154.5% YoY), and number of active users (7.34mn, +87.2% YoY), defined as users who have made an order within the past year. Key indicators that the company watches closely but does not disclose include its order conversion rate (the percent of website viewers that place orders), order unit price (calculable from disclosed KPIs; Shared Research estimates about JPY2,700 in FY08/21), and repeat order rate (Shared Research estimates 2.6–2.8x per quarter in FY08/21; equivalent to 11x per annum). The company expects the order unit price to gradually decline as it makes food delivery an everyday occurrence. This is because prices for frequent customers tend to decline and the company also intends to boost its efforts to tap into those living alone as well as the family demographic. It also expects the repeat order rate to increase.

Revenue structure: As of June 2021, in principle, pay-for-use charges for affiliated restaurants were 10% of order cost as Demae-can service fees (before tax, including points cost); 25% of order cost as delivery commissions (before tax; no charge when affiliated restaurants handle delivery); and maximum of 3% of order value as payment processing fees. In addition, delivery commissions include the portion shouldered by users. The main costs in delivery services include outsourcing costs (cost of revenue), a variable cost that moves in line with the number of outsourced deliveries, part-time personnel expenses incurred on a fixed hourly basis (SG&A expenses), and rent (SG&A expenses). Marketing spending is a strategic expense, used mainly to boost recognition, acquire new users, and increase the repeat order rate.

Strengthening of capital and business alliance with LINE Corp. (unlisted): In March 2020, the company announced an agreement to strengthen its capital and business alliance with the LINE group. With the strengthening of ties between the two companies, going forward, Demae-can will be drawing upon the management resources of the LINE group in a number of different ways, including (1) making use of LINE’s LINE ID service, (2) procuring funding for growth-oriented investment, (3) procuring additional personnel from LINE to help with systems development work and marketing, and (4) receiving support to enable the expansion of its takeout food delivery service into new territories. By combining its own ID system with LINE ID to create a new ID system known as “ONE ID,” Demae-can hopes to make it easy for the more than 89mn LINE users (as of end-June 2021) to make use of its takeout food delivery service. Demae-can will also be able to draw upon LINE’s human resources to help with systems development and marketing.

Trends and outlook

FY08/21 results: For FY08/21, the company reported gross merchandise volume (GMV) of JPY162.7bn (+58.4% YoY), revenue of JPY29.0bn (+181.5% YoY), operating loss of JPY18.0bn (versus loss of JPY2.6bn in FY08/20), recurring loss of JPY18.0bn (versus loss of JPY2.9bn in FY08/20), and net loss attributable to owners of the parent of JPY20.7bn (versus loss of JPY4.1bn in FY08/20). In short, results were largely in line with revised forecasts announced along with Q3 results. Profits were significantly lower YoY due to heavy upfront spending at the Demae-can business, including investment needed to expand delivery area and secure delivery personnel, along with spending on advertising and promotion.  

FY08/22 forecast: For FY08/22, the company forecasts GMV of JPY330.0bn (+102.8% YoY) and operating loss of JPY50.0–55.0bn (versus loss of JPY18.0bn in FY08/21). The company only disclosed forecasts for GMV and an operating loss range, citing the possibility that earnings could be substantially affected by volatility in the delivery market environment. It plans to invest heavily in the view that now is the time to prioritize spending on consolidating business foundations. The company also made no decision on a dividend forecast. In terms of KPI projections for FY08/22, the company targets 1.2mn active users (+63% YoY) and a 3.6x increase in delivery personnel. It plans to focus on area expansion, improving user retention, and increasing GMV per affiliated restaurant.

Medium-term business plan (out October 15, 2020): On March 26, 2020, the company announced a business and capital alliance agreement with LINE Corp. (unlisted), and the signing of a separate agreement under which LINE Corp. and Mirai Fund Limited Liability Partnership pledged to underwrite the company’s issuance of new shares through third-party allotment, which in turn would lead to changes in the company’s principal shareholder and controlling company. With the conclusion of these agreements, the company on October 15, 2020, created a new medium-term management plan spanning the three-year period from FY08/21 to FY08/23. By end-FY08/21, it had already achieved the household coverage target it had set for FY08/23. In addition, the FY08/22 forecast the company announced in October 2021 calls for GMV of JPY330.0bn and operating loss of JPY50.0–55.0bn. This essentially advanced the GMV target contained in the medium-term plan by one year. The amount to be invested in FY08/22 has also grown, so operating loss is likely to exceed the projection contained in the medium-term plan. As competition intensifies, the company plans to actively move forward with investment to increase GMV. The situation when the medium-term plan was formulated in October 2020 and the situation as of October 2021 are very different.

Strengths and weaknesses

Shared Research sees the company as having three key strengths: 1) stronger capital and business alliance with LINE group that allows Demae-can to draw on its management resources as well, 2) strong brand recognition, and 3) adequate funds already raised for investment needed to expand its market share. 

In terms of weaknesses, we see 1) low repeat order rate averaging less than once a month for active users overall, 2) transparency (compared to competitors) of its KPIs and strategies as a listed company essentially conducting a single business, and 3) company strengths difficult to leverage overseas.

Key financial data

Recent updates

Submission of an application for approval to extend the securities report submission deadline and establishment of an internal committee to investigate errors

On November 30, 2021, Demae-can Co., Ltd. announced that it submitted an application for approval to extend the securities report submission deadline and established an internal committee to investigate errors.

In the process of audit procedures related to the settlement of accounts for FY08/21, the accounting auditor pointed out an error in the balance of receivables and payables. The error was in the balance of receivables based on the price for food ordered when service users paid Demae-can using a credit card, and payables due to individual member stores. While investigating this error, the auditor also uncovered an omission of outsourcing expenses. As these errors affect profit and loss, the company determined that it would need to submit corrected versions of past securities reports and internal control reports, as well as correcting financial statements for FY08/21. This will take some time, as it will be necessary to carry out additional audit procedures from previous fiscal years through FY08/21. As a result, the company submitted an application to the Kanto Finance Bureau for approval of an extension of the deadline for submission of its FY08/21 securities report to December 28, 2021.

Demae-can embarked on a full-scale internal investigation by an in-house investigation team consisting of officers and employees across departments. The company believes there is nothing to suggest the possibility of fraud, as with regard to the receivables and payables, the team did not uncover any accounts or payments raising suspicions of a fraudulent transfer of funds. Demae-can now plans to verify whether there was any fraudulent intention in the payment processing for outsourced expenses. Since other errors are expected, the company has identified the need for an investigative body including more objective experts, and on November 30, 2021, it decided to modify its investigative approach and establish an in-house investigation committee. The committee will be chaired by outside counsel and otherwise comprise an outside certified public accountant and the company's CFO. It is due to deliver its findings by late December 2021. The goals of the investigation are as follows: 

• Ascertain the monetary value of the error in the balance of receivables and payables

• Scrutinize outsourcing costs (paid to delivery drivers)

• Verify whether there are any similar errors

• Calculate the impact on consolidated financial statements

• Analyze the reasons for the errors and propose measures to prevent their recurrence

• Cover any other matters deemed necessary by committee members

Follow-up to the general meeting of shareholders, reduction of capital stock, and amendments to the Articles of Incorporation

On November 12, 2021, Demae-can announced that a follow-up to its general meeting of shareholders will be held at a later date.

Demae-can's Board of Directors has decided that a follow-up to the general meeting of shareholders will be held at a later date. As of November12, 2021, due to the discovery of an error in the balance of receivables and payables as pointed out by the accounting auditor, the company is unable to provide some of the necessary documents that should accompany the notice of convocation for the general meeting of shareholders, including the Business Report and the Audit Report by the Board of Auditors, as well as Financial Statements, Consolidated Financial Statements, and the audit reports pertaining to them. As a result, the company decided that it would not be able to report its financial results at the general meeting of shareholders as planned.

On the same day, the company announced that it would discuss the reduction of the amount of capital stock at the general meeting of shareholders.

Of the JPY55,121mn in capital stock as of November12, 2021, JPY55,021mn will be reduced to JPY100mn, and the amount of the decrease will be transferred to other capital surplus. There will be a transfer of accounts in the net assets section of the balance sheet; this will have no impact on the company's profit and loss, net assets, and business performance.

On the same day, the company announced that it would address the general meeting of shareholders concerning amendments to its Articles of Incorporation.

In order to institute a more flexible capital policy, the total number of authorized shares will be increased from the current 150mn shares to 500mn shares. In addition, to enable agile implementation of capital and dividend policies, changes will be made to allow the Board of Directors to determine dividends of surplus by resolution.

Determination of the issue and disposal prices / Change in major shareholder related to an issuance of new shares through an overseas offering / Disposition of treasury stock / Third-party allotment

Demae-can Co., Ltd. announced the determination of the issue and disposal prices and change in major shareholder related to an issuance of new shares through an overseas offering, disposition of treasury stock, and a third-party allotment.

The company announced the determination of the issue and disposal prices relating to the issuance of new shares through an overseas offering and disposition of treasury stock (collectively referred to as “Overseas Offering”), as well as the issuance of new shares through a parallel third-party allotment (“Third-Party Allotment”) announced on September 13, 2021. The following summarizes the company’s media announcement and was not created for the purpose of soliciting investment.

Intended use of procured capital (after determination of issue price)

Of the approximately JPY83bn in proceeds from the Overseas Offering and Third-Party Allotment, JPY68bn will be allocated to working capital (marketing expenses), JPY10bn to capital expenditures (for system enhancement and development), and JPY5bn to working capital (hiring expenses to reinforce delivery personnel, among others), all by the end of February 2024.

Overseas Offering issue price

• Issue price and disposal price: JPY1,736 (note: the difference with the amount to be paid in shall be proceeds to the underwriter)
• Discount: 3.02% versus closing price of JPY1,790 on September 15, 2021
• Amount to be paid in: JPY1,666.56
  

Number of shares to be issued through parallel Third-Party Allotment (amount to be paid in: JPY1,736 per share)

• Z Holdings Corporation: 19,158,900 shares
• NAVER Corporation: 10,368,600 shares
  

Change in major shareholder

Following the Overseas Offering and Third-Party Allotment, Z Holdings Corporation is expected to become a new major shareholder of the company. Following the change, Z holdings is expected to have 14.62% of voting rights (third-largest shareholder). The planned date of change is September 30, 2021.

Issuance of new shares through an overseas offering / Disposition of treasury stock / Third-party allotment

Demae-can Co., Ltd.  announced an issuance of new shares through an overseas offering, disposition of treasury stock, and a third-party allotment.

The company announced an issuance of new shares through an overseas offering and disposition of treasury stock (collectively referred to as “Overseas Offering”), as well as an issuance of new shares through parallel third-party allotment (“Third-Party Allotment”). The company expects to raise approximately JPY80bn in net proceeds and issue 49mn shares through new share issuance and disposition of treasury stock (equivalent to 59.99% of total issued shares; this percentage may fluctuate according to an increase in third-party allotment of shares). In order to lead the expected consolidation in the Japanese food delivery industry, the company determined that it was essential to further expand its market share and make growth investments. The following summarizes the company’s media announcement and was not created for the purpose of soliciting investment.

Intended use of procured capital

Of the approximately JPY80bn in proceeds from the Overseas Offering and Third-Party Allotment, JPY65bn will be allocated to working capital (marketing expenses), JPY10bn to capital expenditures (for system enhancement and development), and JPY5bn to working capital (hiring expenses to reinforce delivery personnel, among others), all by the end of February 2024.

Terms of offerings

Overseas Offering bookrunner/underwriter: J.P. Morgan Securities, plc.

Lockup period: 180 days (the company, LINE Corporation, Mirai Fund LLP, Z Holdings Corporation, NAVER Corporation)

Date of determination of issuance terms: Between Wednesday, September 15, 2021 and Friday, September 17, 2021 (payment amount of third-party allotment is the same as the issuance price of the Overseas Offering)

Payment date (period)/transfer date: For Overseas Offering, the payment date is Thursday, September 30, 2021 while the transfer date is Friday, October 1, 2021. The payment period for Z Holdings and NAVER is between Thursday, September 30 and Friday, October 29, 2021. Payment is expected on Thursday, September 30, 2021.

Outline of offering structure

The company will issue 19.3mn shares (JPY32.0bn) through Overseas Offering, 19.2mn shares through third-party allotment to Z Holdings (JPY31.7bn), and 10.9mn shares through third-party allotment to NAVER (JPY18.0bn).

Through a third-party share allotment, Z Holdings will underwrite 19.21mn shares in newly issued shares (base number of shares to be allotted) and accordingly own essentially 38.29% of the company (includes direct holdings through LINE and indirect holdings through LINE’s 10% holdings in Mirai Fund). If share price falls by the date of determination of issuance terms, Z Holdings can request an additional allotment for a maximum of 22.7mn shares in order for the company to raise a total of JPY80bn through Overseas Offering and Third-Party Allotment.

The number of shares to be allotted to NAVER is the number of shares obtained by dividing JPY18.0bn (fixed amount) by the payment amount. However, the maximum number of shares to be allotted to NAVER is 16.6mn.

Impact on financial performance

Demae-can stated that this capital procurement would contribute to enhancing its financial performance and enterprise value, as well as to the medium- to long-term growth, through the business activities funded through the procured capital. The company plans to promptly disclose any impact on earnings performance that may emerge in the future.

Trends and outlook

Quarterly trends and results

Full-year FY08/21 results

Overview

For the three-month period of Q4 FY08/21 (June–August 2021), the company reported consolidated revenue of JPY8.0bn (+168.2% YoY), operating loss of JPY4.5bn (versus loss of JPY620mn in Q4 FY08/20), recurring loss of JPY4.5bn (versus loss of JPY951mn in Q4 FY08/20), and net loss of JPY5.1bn (versus loss of JPY973mn in Q4 FY08/20). The sharp YoY increases in losses reflected heavy upfront spending at its Demae-can business, including investment needed to expand its delivery area and secure delivery staff, along with spending on marketing. For Q4 FY08/21 the company also booked an impairment loss of JPY794mn.

FY08/21 results: For FY08/21, the company reported gross merchandise volume (GMV) of JPY162.7bn (+58.4% YoY), revenue of JPY29.0bn (+181.5% YoY), operating loss of JPY18.0bn (versus loss of JPY2.6bn in FY08/20), recurring loss of JPY18.0bn (versus loss of JPY2.9bn in FY08/20), and net loss attributable to owners of the parent of JPY20.7bn (versus loss of JPY4.1bn in FY08/20). In short, results were largely in line with revised forecasts announced along with Q3 results. The company had left its dividend forecast undecided but ultimately chose to pay no dividend, having recorded net loss. 

Demae-can business: The company’s mainstay Demae-can segment posted Q4 revenue of JPY10.4bn (+215.9% YoY) and operating loss of JPY5.1bn (versus loss of JPY970mn in Q4 FY08/20). Key performance indicators for Q4 were gross merchandise volume (GMV) of JPY48.9bn (+58.8% YoY), order count at 18.2mn (+64.0% YoY), active users at 7.34mn (+87.2% YoY), and affiliated restaurants at 84,000 (+154.5% YoY). The Sharing Delivery service area covered 56% of Japanese households. 

Performance versus FY08/21 targets set under medium-term plan: The company met all of its KPI targets, reporting FY08/21 GMV of JPY162.7bn versus a target of JPY160.0bn, an affiliated restaurant count of 84,000 versus a target of 75,000, and service area coverage of 56% of Japanese households, versus a target of 36%. 

Full-year company forecast for FY08/22: For FY08/22, the company forecasts GMV of JPY330.0bn (+102.8% YoY) and operating loss of JPY50.0–55.0bn (versus loss of JPY18.0bn in FY08/21). The company only disclosed forecasts for GMV and an operating loss range, citing the possibility that earnings could be substantially affected by volatility in the delivery market environment. It plans to invest heavily in the view that now is the time to prioritize spending on consolidating business foundations. The company also has made no decision on a dividend forecast. In terms of KPI projections for FY08/22, the company targets 1.2mn active users (+63% YoY) and a 3.6x increase in delivery personnel. It plans to focus on area expansion, improving user retention, and increasing GMV per affiliated restaurant. 

Fundraising: In September 2021, the company announced the issuance of new shares through an overseas offering, disposal of treasury shares, and issuance of new shares through third-party allotment. The company believes it is essential to take further measures to expand market share and invest in growth in order to be in a position to lead expected consolidation in the domestic food delivery industry. Of the JPY83bn in expected proceeds, JPY68bn will be used for marketing expenses, JPY10bn will go toward system strengthening and development funds, and JPY5bn will be used to boost the number of delivery personnel, all by end-February 2024. See "Recent updates" for further detail on this fundraising activity.

Performance by segment

Demae-can segment

For the three-month period of Q4 FY08/21, the Demae-can segment reported revenue of JPY10.4bn (+215.9% YoY) and operating loss of JPY5.1bn (versus loss of JPY970mn in Q4 FY08/21).

Demae-can segment revenue broke down as follows: Demae-can service fees of JPY3.4bn (+74.7% YoY), delivery commission revenue of JPY6.7bn (+560.8% YoY), and other JPY393mn (+12.4% YoY).

Product improvements are ongoing. For the benefit of users, the company introduced recommendations (to improve the conversion rate through personalization), began providing GPS data for tracking delivery personnel, and enhanced the review function. For the benefit of affiliated restaurants, it began providing a report function and made improvements to the user interface (UI) of the order management screen. For delivery personnel, the company introduced Dynamic Area Control, which adjusts the delivery area according to demand, and improved the UI for the driver app.

KPIs

Key performance indicators for Q4 were gross merchandise volume (GMV) of JPY48.9bn (+58.8% YoY), order count at 18.2mn (+64.0% YoY), active users at 7.34mn (+87.2% YoY), and affiliated restaurants at 84,000 (+154.5% YoY). The Sharing Delivery service area covered 56% of Japanese households. 

GMV per order (estimated as GMV ÷ number of orders) in Q4 was JPY2,698 (JPY2,703 in Q3).
The number of repeat orders (number of orders ÷ average number of active users) was 2.6 in Q4 (2.6 in Q3). The company spent JPY5.1bn on advertising in Q4 (JPY3.5bn in Q3).

In Q4, Sharing Delivery GMV was roughly 4.2x the Q4 FY08/20 figure, and full-year GMV was roughly JPY51.2bn. The number of Sharing Delivery affiliated restaurants was about 4.1x YoY and registered delivery personnel about 6.8x YoY. In FY08/21, GMV per existing Sharing Delivery base (in operation as of end-August 2020) approximately doubled YoY.

On October 27, 2021, the company announced that the number of affiliated restaurants (including those using DeDirect) had surpassed 95,000. DeDirect, which makes it easy for affiliated restaurants to create delivery-related websites, launched at end-August and has been steadily building a user base.

Competitor trends

The competitive environment is intensifying, and competitors are expanding their delivery areas and raising funds.

In September 2021, Uber Technologies, Inc. (NYSE: UBER) became the second company after Demae-can to offer food delivery service in all 47 prefectures in Japan.  

DoorDash (NYSE: DASH), one of the largest delivery service providers in the US, entered the Japanese market in June 2021 with the regional city of Sendai in Japan as its first foray. DoorDash has now begun expanding into several other areas.

Gurunavi, Inc. (TSE1: 2440) has announced plans to raise approximately JPY5.0bn from August through October 2021.

Other topic

In October 2023, Japan will implement an invoice system for consumption tax. Generally, the system requires a seller to be a qualified invoice issuing business in order for a buyer to be eligible for a purchase tax credit. To become a qualified invoice issuer, a company must submit an application to the tax office for registration as a qualified issuer. However, it appears that many so-called gig workers do not understand the invoice system or do not intend to register (especially those who are not full-time workers). Although a radical change mitigation measure (offering gradual reduction) has been set for the purchase tax credit through October 2029, the company may be unable to apply some of that credit, so its response to the invoice system should be kept in mind hereafter. The company plans to address the issue as part of industry-wide efforts led by the Japan Food Delivery Service Association.

Mail Order segment

For the three-month period of Q4 FY08/21, the Mail Order segment reported revenue of JPY88mn (-51.9% YoY) and operating profit of JPY12mn (-72.5% YoY), as pandemic-related restrictions continued to force its many clients in the restaurant and bar industry to keep shorter operating hours.

Company forecast for FY08/22

Initial forecast (as of October 14, 2021)

For FY08/22, Demae-can forecasts full-year gross merchandise volume (GMV) of JPY330.0bn (+102.8% YoY) and operating loss of JPY50.0–55.0bn (versus loss of JPY18.0bn in FY08/21). The company only disclosed forecasts for GMV and an operating loss range, citing the possibility that earnings could be substantially affected by volatility in the delivery market environment. The company sees FY08/22 as a period to prioritize investment to build the foundation of its business and plans to move forward with substantial investment. Additionally, it left its dividend forecast undetermined.

The company expects the market to grow at a rate of 30–40%. At the same time, it expects the portion of GMV growth that exceeds market size growth to come from market share expansion. For this reason, the company will need to keep a close eye on competitors' actions in FY08/22.

Revenue will fluctuate depending on the ratio of GMV generated by the Sharing Delivery service. There are many factors beyond the company's control, such as whether the user chooses a menu item subject to Sharing Delivery when ordering. For this reason, the company provides initial projections for GMV, which it can manage, but not for revenue, which is difficult to manage.

In FY08/22, it will be important to secure delivery personnel to achieve strong GMV growth. Demae-can expects the delivery model to remain in the red in FY08/22.

The company projects that the ratio of advertising expenses to GMV will be about 15%. It states that the projected operating loss range is based on marketing spending (advertising expenses and promotional costs in the form of coupons) and the amount of loss linked to the number of Sharing Delivery orders. The company does not disclose information as to where it directs its marketing spending.

In the event it does not spend as much on marketing as initially projected, it is likely this will be because it does not expect the investment to be as effective (in growing GMV) as previously anticipated. For this reason, if in FY08/22 the company does not reach the planned level of marketing spending, resulting in narrower operating loss than projected, there will be concern about progress on GMV growth.

KPI projections

As KPI projections for FY08/22, the company targets 1.2mn active users (+63% YoY) and a 3.6x increase in delivery personnel numbers.

1.2mn active users corresponds to nearly 10% of Japan's total population of JPY125mn as of August 2021 (of which 111mn are aged 15 or older). The projected GMV growth rate (+103% YoY) is higher than the growth rate for the number of active users (+63% YoY), but this is mainly due to an anticipated increase in order frequency.

Taking into account the shortage of delivery personnel as of October 2021, the company expects to need a 3.6x increase if it is going to achieve the GMV target of JPY330.0bn. This is a numerical target based on registration, since delivery personnel are not necessarily all active, and even if they are, the level of activity can vary from person to person.

The company has not provided KPI projections for the number of affiliated restaurants or household coverage for Sharing Delivery. It believes the stage at which it should focus on these two KPIs has passed, and that it will instead be important to focus on the numbers of active users and delivery personnel to achieve the GMV target of JPY330.0bn proposed in its FY08/22 forecast. In FY08/22, the company will prioritize increasing the number of affiliated restaurants with a high affinity to delivery.

Business strategy

In FY08/22, the company will emphasize an area strategy and improvements in user retention and GMV per affiliated restaurant.

In regard to the area strategy, the company will implement detailed measures to enhanced brand awareness, secure delivery personnel, and promote sales, making adjustments in response to specific situations in the various areas in which it operates. Since FY08/21, it has been setting up sales offices in key markets to provide affiliated restaurants deemed to have room for GMV growth with consulting services covering such topics as optimizing delivery area, strengthening menu offerings, and conducting promotional activities. It will continue to provide such consulting in FY08/22.

In regard to improving user retention, the company will continue to implement measures such as a loyalty program providing benefits according to member rank, as determined by order frequency, along with personalized recommendations based on usage data with the goal of increasing order frequency. It will also continue to promote the expanded use of the delivery service for non-food products and the use of LINE messages.

To improve GMV per affiliated restaurant, the company provides the aforementioned consulting services, and at end-August 2021 began providing the DeDirect service, which affiliated restaurants can use to easily create dedicated delivery websites that are automatically linked to information posted by Demae-can without the burden of development and maintenance costs, allowing them to directly attract their own fans. The company plans to make remarketing possible through the official LINE accounts of affiliated restaurants. In the first month and a half after the service launched, the company received applications from about 6,000 restaurants.

Historical forecast accuracy

Medium-term business plan

On March 26, 2020, the company announced that it had signed an agreement to form a business and capital alliance with LINE Corp. (unlisted), and that it had also entered into a separate agreement under which LINE Corp. and Mirai Fund Limited Liability Partnership pledged to underwrite the company’s issuance of new shares through third-party allotment, which in turn would lead to changes in the company’s principal shareholder and controlling company. With the conclusion of these agreements, the company created a new medium-term management plan spanning the three-year period from FY08/21 to FY08/23 on October 15, 2020. Under its medium-term plan, the company aims to make food delivery an everyday occurrence.

By end-FY08/21, it had already achieved the household coverage target it had set for FY08/23. In addition, the FY08/22 forecast the company announced in October 2021 calls for GMV of JPY330.0bn and operating loss of JPY50.0–55.0bn. This essentially advanced the GMV target contained in the medium-term plan by one year. The amount to be invested in FY08/22 has also grown, so operating loss is likely to exceed the projection contained in the medium-term plan. As competition intensifies, the company plans to actively move forward with investment to increase GMV. The situation when the medium-term plan was formulated in October 2020 and the situation as of October 2021 are very different.

Outlook by business model

At its FY08/21 results briefing, the company explained that it categorizes its business into two business models: an e-commerce model and a delivery model. Since it has been supporting in-house delivery by affiliated restaurants for some time, the ratio of such in-house delivery remained high even in FY08/21. In light of this fact, the company has decided to use the same distinction between the e-commerce model and the delivery model for external explanations as it uses for internal management.

E-commerce model

The company attributes platform usage fees paid by all affiliated restaurants (regardless of whether or not they use Sharing Delivery) to the e-commerce model, along with shared costs such as marketing, development, and head office costs. It regards the e-commerce model as one that leverages profit through pursuit of scale and believes it will be a major source of future profit. With this model, profit is the difference between the company's take rate (for platform usage fees and other fees) and its costs. The company expects the take rate to increase gradually, since the ratio of affiliated restaurants subject to the 10% pay-as-you-go service fee is on the rise as of October 2021 (the take rate was 6.7% in Q1 FY08/21, rising to 7.0% by Q4), and since it anticipates new monetization points such as advertising business in the future. 

The company expects the ratio of advertising expenses to GMV for the e-commerce model to be about 15% in FY08/22, but hopes to hold it to no more than 2% in the medium term. However, what constitutes "medium term" may change, depending on the competitive environment. The company also says it will take into account trends at its competitors when deciding its marketing spending from FY08/23 onward, but plans to reduce such spending from the FY03/22 level.

Delivery model (Sharing Delivery)

The company attributes Sharing Delivery service usage fees (revenue from both affiliated restaurants and users) to the delivery model, along with delivery costs and costs related to acquiring delivery personnel. In other words, it attributes profit and loss directly related to the Sharing Delivery service to the delivery model, which it regards as a growth engine. While it does aim to break even on the service, it does not expect to generate substantial profit from delivery itself.

The company aims to break even on the delivery model in the medium term, although here the meaning of "medium term" can vary, depending on whether or not the company can secure an adequate number of delivery personnel to keep pace with GMV. If the growth rate for GMV is high and the company has trouble securing adequate delivery personnel in a timely manner, it will need to offer delivery bonuses to increase the activity of delivery personnel already registered, resulting in higher delivery costs.

Expanding delivery to cover non-food products (e-commerce model)

The company mainly delivers food, so peak delivery times are skewed toward lunch and dinner, making it difficult to attract delivery staff because it is difficult for them to make money throughout the day. Together with its parent, Z Holdings Corporation (TSE1: 4689), and Z Holdings subsidiary ASKUL Corporation (TSE1: 2678), Demae-can has begun a proof-of-concept process for the PayPay Direct by ASKUL rapid delivery service. Z Holdings provides marketing support to attract customers, while ASKUL manages and operates stores (including product pickup). Demae-can provides the system and delivery service and is considering expanding PayPay Direct by ASKUL to other regions and additional services based on its understanding of last-mile delivery needs.

The size of the non-food products market will change depending on how much the company expands the lineup of products its handles, but it believes the market could even exceed the restaurant market with the addition of cosmetics. Although it is difficult to determine a time frame, the company believes that non-food products could eventually account for more of its GMV than food products, with progress on collaboration with Z Holdings group companies.

For non-food products, the profit margin for affiliated stores varies depending on the product category, so the company will consider a balance between fees collected from the affiliated stores and fees collected from users for each product category.

Expanding categories and enhancing profitability (e-commerce model)

The company plans to enhance profitability by expanding its service categories beyond food to include daily necessities and other items, and by providing affiliated stores with advertising services (making it easier to attract customers to the company's platform) and the new DeDirect service, which lets affiliated stores easily create delivery-related websites. It plans to begin announcing the details of the advertising services to affiliated stores during 1H FY08/22, but expects the contribution to earnings in FY08/22 to be limited.

Marginal profit outlook for outsourced delivery personnel (delivery model)

In terms of marginal profit for outsourced delivery personnel, in FY08/21, the company posted substantial loss in Q2, profit in Q3, and loss in Q4. Trends in marginal profit are affected by the balance between GMV growth and the securing of delivery personnel.

In other words, marginal profit deteriorated in Q2 due to an increase in incentives for delivery personnel because the company could not secure adequate personnel to keep pace with GMV growth. Q3 saw a balance between the two factors, so there was no need to boost incentives and the business generated a profit. In Q4, GMV growth again outpaced the securing of delivery personnel, causing marginal profit to deteriorate once more. In this way, although marginal profit can move into the black when a balance is achieved, it can deteriorate in periods of rapid GMV growth because of the need for incentives to resolve the personnel shortage.

The company believes that outsourced delivery can break even in the medium term, but "the medium term" means such a time as it can achieve a stable balance between GMV growth and the availability of delivery personnel.

Investment policy and fundraising

In September 2021, the company announced the issuance of new shares through an overseas offering, disposal of treasury shares, and issuance of new shares through third-party allotment. The company believes it is essential to take further measures to expand market share and invest in growth in order to be in a position to lead expected consolidation in the domestic food delivery industry. Of the JPY83bn in proceeds, it will allocate JPY68bn to marketing expenses, JPY10bn to system strengthening and development funds, and JPY5bn to boost the number of delivery personnel, all by end-February 2024. The company believes it has raised an adequate amount to achieve a top position in terms of GMV by end-February 2024, and as of October 2021 says it does not see the need to raise additional funds for the time being.

Strengthened capital and business alliance with LINE group

In March 2020, the company announced that it had entered into an agreement to strengthen its capital and business alliance with the LINE group. With the strengthening of the ties between the two groups, going forward Demae-can will be drawing upon the management resources of the LINE group in a number of different ways, including (1) making use of LINE’s LINE ID service, (2) procuring funding from LINE for growth-oriented investment, (2) procuring additional personnel from LINE to help with systems development work and marketing, and (4) help with the expansion of its takeout food delivery service into new territories. By combining its own ID system with LINE ID to create a new ID system known as ONE ID, Demae-can hopes to make it easy for the 86mn users of LINE (as of October 2020) to make use of its takeout food delivery service. Demae-can will also be able to draw upon LINE’s human resources to help with systems development and marketing. And, because LINE operates its own takeout food delivery service (under the name Pockeo), Demae-can is also expecting to generate synergies as it absorbs the operations of the delivery service operated by LINE into its own operations.

Outline of capital and business alliance between Demae-can and LINE Corp.

Details of joint businesses between the two companies

Optimizing use of database including information on users, member stores, and order histories at Demae-can

Optimize use of tracking system at Demae-can

Promoting transition to ONE ID (combining ID with LINE ID) at Demae-can

Developing Business Intelligence (BI) tools to increase the visibility of key performance indicators, such as order numbers and active users

Upgrading management tools (CMS tools) for store operators

Creating a main customer interface that can be customized by individual users

Promoting Demae-can’s Sharing Delivery service (contract delivery agent)

Promoting takeout order services

Optimizing marketing and branding strategies for websites, LINE, and apps

Putting one-to-one marketing and PDCA management into practice

Major areas of agreement in business alliance

The LINE Delima home delivery service operated by LINE Corp. will be rebranded under the Demae-can name (thereby uniting the two delivery services under the Demae-can brand name)

The Pockeo home delivery service operated by LINE Corp (one of the businesses that Demae-can will take over from LINE Corp.) will be subsequently merged with Demae-can’s home delivery service operations

Under a separate agreement between the two companies, LINE Corp. will dispatch its own IT system and marketing managers to Demae-can.

Reasoning behind capital and business alliance and stock purchase agreement with LINE Corp.

Despite the large amount of investment spending and the resulting operating losses that it incurred in FY08/19 to carry out upgrades of its applications and website (including changes in design, added functionality, and other changes making the apps and website more user-friendly), Demae-can recognized that it had still not done enough investing to mount a serious challenge to large players in the industry that had much more substantial capital resources. Further considering the current operating environment, the company recognized that if it was to continue growing steadily in the future, it must quickly establish its position as the top delivery platform in the market before larger and better-capitalized competitors gain a dominant position in the market. Accordingly, the company came to the conclusion that it needed to join forces with LINE Corp. and bring out the synergies from their combined resources in order to implement the following initiatives as soon as possible:

1. Expand the number of directly managed delivery hubs and strengthen the Sharing Delivery service to enable it to compete against delivery service providers
2. Expand its sales team in order to bring in more new customers
3. Increase its advertising efficiency ratio by creating a more effective marketing strategy
4. Upgrade systems
5. Expand its “Cloud Kitchen” operations and expand into new takeout food delivery territories
6. Increase the efficiency of delivery operations
   

LINE group's aims and vision for the future

Establishing closer ties with Demae-can fits in with LINE’s overall strategy of building up its LINE communication app to the point that it becomes a “super-app” (a comprehensive app that can handle a wide variety of daily transactional needs) and its ongoing efforts to use its LINE communications app as a way to expand into other areas, including payments/financing, marketing, O2O commerce, and content. For an app to gain super-app status, it must be useful in everyday life, and food is an important area in this regard because there are so many contact points with customers.

More specifically, the future plans call for becoming the top player (in terms of handling volumes) in the food delivery market, not only in Japan but in Asia as well.

Over the medium to long term, the two companies are looking to build a comprehensive food marketing platform to handle not only delivery, cloud kitchen, and takeout services, but also dine-in and mobile orders.

Business

Business description

Demae-can business

The company operates Demae-can, a food delivery website for restaurants. Under its Demae-can business, the company operates a dedicated online platform through which consumers looking for speedy home delivery service (in as little as 20 minutes) can order food from affiliated restaurants. The company offers an outsourced delivery platform, Sharing Delivery, for restaurants without their own delivery infrastructure. Since Q3 FY08/20, amid a tough climate for the restaurant industry due to the COVID-19 outbreak, the company has grown revenue sharply by responding to demand for delivery from restaurants and consumers. FY08/21 revenue was JPY29.0bn (+181.5% YoY). However, the company posted operating loss of JPY17.9bn for the year (versus loss of JPY2.6bn in FY08/20) due to marketing and other upfront spending. The Demae-can business accounted for roughly 98% of revenue in FY08/21, and the company only operates in Japan.

Outsourced delivery platform (Sharing Delivery)

The company is moving forward with a hybrid system in which it secures delivery infrastructure by establishing delivery bases (Sharing Delivery bases) while outsourcing deliveries to companies and individuals during peak hours to suppress fixed costs. The company manages its Sharing Delivery bases directly and in partnership with other companies. It distinguishes itself with efficient, quality delivery services that set it apart from its main competitor Uber Technologies, Inc. (NYSE: UBER). The company said it covered 56% of households in Japan as of end-FY08/21, and about 31% of gross merchandise volume (GMV) was from Sharing Delivery services (69% was from affiliates’ own deliveries).

Key Performance Indicators

The company discloses several key performance indicators that it watches closely: GMV (JPY162.7bn in FY08/21, +58.4% YoY), number of orders (60.3mn, +62.7% YoY), number of affiliated restaurants (84,000, +154.5% YoY), and number of active users (7.34mn, +87.2% YoY), defined as users who have made an order within the past year. Key indicators that the company watches closely but does not disclose include its order conversion rate (the percent of website viewers that place orders), order unit price (calculable from disclosed KPIs; Shared Research estimates about JPY2,700 in FY08/21), and repeat order rate (Shared Research estimates 2.6–2.8x per quarter in FY08/21; equivalent to 11x per annum). The company expects the order unit price to gradually decline as it makes food delivery an everyday occurrence. This is because prices for frequent customers tend to decline and the company also intends to boost its efforts to tap into those living alone as well as the family demographic. It also expects the repeat order rate to increase.

Revenue structure

As of June 2021, in principle, pay-for-use charges for affiliated restaurants were 10% of order cost as Demae-can service fees (before tax, including points cost); 25% of order cost as delivery commissions (before tax; no charge when affiliated restaurants handle delivery); and maximum of 3% of order value as payment processing fees. In addition, delivery commissions include the portion shouldered by users. The main costs in delivery services include outsourcing costs (cost of revenue), a variable cost that moves in line with the number of outsourced deliveries, part-time personnel expenses incurred on a fixed hourly basis (SG&A expenses), and rent (SG&A expenses). Marketing spending is a strategic expense, used mainly to boost recognition, acquire new users, and increase the repeat order rate.

Strengthening of capital and business alliance with LINE Corp. (unlisted)

In March 2020, the company announced that it had entered into an agreement to strengthen its capital and business alliance with the LINE group. With the strengthening of the ties between the two companies, going forward, Demae-can will be drawing upon the management resources of the LINE group in a number of different ways, including (1) making use of LINE’s LINE ID service, (2) procuring funding for growth-oriented investment, (3) procuring additional personnel from LINE to help with systems development work and marketing, and (4) receiving support that enables the expansion of its takeout food delivery service into new territories. By combining its own ID system with LINE ID to create a new ID system known as “ONE ID,” Demae-can hopes to make it easy for the more than 86mn LINE users (as of October 2020) to make use of its takeout food delivery service. Demae-can will also be able to draw upon LINE’s human resources to help with systems development and marketing.

Demae-can business

Business structure

The company’s business structure consists of providing a platform that connects consumers, who wish to place food delivery orders, with restaurants providing such services and charging processing fees. Both consumers and restaurants benefit by using the company’s platform.

Consumers enjoy convenience (requires only initial registration and offers various payment methods), product selection (proportional to the number of affiliated restaurants), and discounts (reward points, coupons). Affiliated restaurants benefit from reduced promotion costs (attracting consumers who do not receive newspaper promotions), lighter burden for food delivery and sharp drop in human errors, call center support, and the company’s Sharing Delivery service for restaurants without proprietary delivery services (limited to certain areas).

Affiliated restaurants can measure cost-effectiveness as they pay order processing fees in line with sales. It also facilitates reaching younger customer segments. Using Sharing Delivery allows affiliated restaurants without their own food delivery infrastructure to access a new source of revenue.

Affiliated restaurants

The company was working aggressively to expand its affiliated restaurant network. The company’s strategy entails first growing the number of affiliated restaurants, resulting in more orders and active users, and thereby increasing density, boosting delivery efficiency. To win more repeat orders, it is also important to increase the number of affiliated restaurants with low-priced items such as coffee and cake shops. In October 2021, the company had important affiliated restaurant chains in the following categories:

• Pizza: Pizza-La, Domino’s Pizza, Pizza Hut, Napoli no Kama
• Hamburgers: McDonald’s, Lotteria, KFC, Mos Burger, First Kitchen, Freshness Burger, Burger King
• Curry: CoCo Ichibanya
• Octopus balls: Gindaco
• Family restaurants: Gusto, Saizeriya, Joyfull, Coco’s, Bikkuri Donkey, Royal Host, Bamiyan, Denny's
• Japanese: Ootoya Gohan-Dokoro, Yayoiken
• Rice bowls: Sukiya, Yoshinoya, Matsuya, Nakau, Tendon Tenya, Katsuya, Densetsu no Sutadonya
• Udon noodles: Marugame Seimen, Hanamaru Udon, Yamada Udon
• Soba noodles: Fuji Soba
• Sushi: Sushiro, Hamazushi, Kura Sushi, Kappa Sushi, Sushi Choushimaru, Sushizanmai, Gatten Sushi, Gin no Sara
• Boxed lunches (bento): Hotto Motto, Hokka Hokku Tei, Kitchen Origin
• Chinese: Gyoza no Ohsho, Ringer Hut, Kourakuen, Hidakaya, Ippudo, Tenkaippin
• Izakaya bars: Torikizoku, Uotami, Kushikatsu Tanaka, Dandadan Sakaba
• Coffee shops: Starbucks, Doutor, Mister Donut, Tully’s Coffee, Gong cha
• Dessert: Baskin-Robbins, Fujiya, Cozy Corner
  

Order routes

Orders come online or via the app. The company said that it developed its business before its competitors, and many of its existing customers are used to ordering online, so the share of online orders is relatively high.

The company said that the internet was more effective than apps in acquiring first-time users. Online, the company has secured a route on the top page of Yahoo! JAPAN (operated by the company’s parent company Z Holdings [TSE1:4689]). Also, LINE (discussed below) refers customers to its online services (as of March 2021).

The company said that the conversion rate for app users is high, and it has measures to increase the number of repeat orders from existing users by drawing them to the app from the second order onward.

Services offered via LINE

Under the terms of the capital and business alliance between the two companies announced in March 2020, LINE Delima was rebranded under the Demae-can name and the two order systems were merged. When an order is made through LINE, Demae-can splits the commission from the affiliated restaurant with LINE (revenue sharing rate undisclosed).

The end of d-delivery

NTT Docomo, one of Japan’s three large mobile carriers and subsidiary of NTT (TSE1: 9432) ended its d-delivery food delivery service that used Demae-can’s platform. It stopped taking orders on May 1, 2021. NTT Docomo is reportedly focusing business resources on cashless payments in light of heavy marketing costs. The end of the service meant that the company lost one order channel. However given that delivery demand itself will not decline, the prominence of the Demae-can brand, and the ability to use the “d-barai” (cashless payment) service offered by NTT Docomo, the company plans to encourage d-delivery customers to keep using Demae-can and minimize the impact of the end of d-delivery services. Q3 usually sees a seasonal downturn in orders as temperatures rise, but GMV in Q3 FY08/21 was greater than in Q2, despite this seasonal downturn and the loss of orders via d-delivery from May.

External factors such as the day of the week and weather

Accurate analysis of the effects of external factors is difficult because there are multiple variables, many of which change based on region and time, but in general the following effects can be seen.

A trend toward more orders on weekends and holidays compared to weekdays

A trend toward more orders on cold days, hot days, and rainy days when going out is troublesome. The company’s ability to maintain delivery bases and personnel (directly managed or not) gives it an edge on this front.

A trend toward lower orders in Q3 (March–May) as the weather becomes warmer, and a trend toward more orders in July and August when school is out of session

Since demand for home delivery goes up at night, a trend toward more orders at night than during the day

Sharing Delivery (outsourced delivery platform)

Sharing Delivery enables restaurants without proprietary delivery services to outsource delivery. The company fully launched the service in FY08/17. When an affiliated restaurant uses Sharing Delivery, the company receives 25% of the product price (excluding tax) as a commission (but not in the case of an affiliated restaurant conducting in-house delivery). The delivery commission is passed on to the user depending on how much the restaurant in question adds to the menu price and delivery charge. As of end-FY08/21, it covered 56% of Japanese households, and as of June 2021, the company was operating in all of Japan’s 47 prefectures.

With the services the company offers, affiliated restaurants do not necessarily have to use Sharing Delivery (outsourced delivery platform), and can instead choose to conduct in-house delivery. Since it has been supporting this in-house delivery for some time, the ratio of such delivery remained high even in FY08/21. As of FY08/21, about 31% of gross merchandise volume (GMV) was from Sharing Delivery services (69% was from affiliates’ own deliveries).

Benefits for restaurants

Low-risk acquisition of delivery networks: Stores can gain access to a delivery network by paying a delivery fee (passed on to the consumer in product pricing) and do not need to take on investment risk, e.g., delivery vehicles, personnel. Acquisition of new customer segments: In addition to securing food delivery demand, stores can access new customer segments that are reluctant to enter physical stores. The company has observed this effect at certain major chain restaurants. High average spending per customer: Stores enjoy growth in orders from Demae-can users, whose average spending is high (just under JPY3,000). Improved operational efficiency and lower costs: Utilizing the company’s platform leads to reduced promotional and operational costs, such as order-related costs.
Benefits for consumers
Expanded product selection: Users can order from major chains or local restaurants that previously did not offer delivery services.
Enhanced convenience: Users can order from stores they previously found difficult to enter.

Expanded lineup of handled products 

Together with its parent, Z Holdings Corporation (TSE1: 4689), and Z Holdings subsidiary ASKUL Corporation (TSE1: 2678), Demae-can has begun a proof-of-concept process for the PayPay Direct by ASKUL rapid delivery service. Z Holdings provides marketing support to attract customers, while ASKUL manages and operates stores (including product pickup). Demae-can provides its system and delivery service and is considering expanding PayPay Direct by ASKUL to other regions and additional services based on its understanding of last-mile delivery needs.

Sharing Delivery’s delivery network

The company is moving forward with a hybrid system in which it outsources deliveries to companies and individuals during peak hours to suppress fixed costs, while also securing delivery infrastructure by establishing delivery bases (Sharing Delivery bases).

Some of the delivery bases used for its Sharing Delivery service are operated directly while others are operated through partnerships with other companies, such as newspaper delivery service operators. Sharing Delivery depended heavily on partner companies early on, but from FY08/19 the company has mainly opened directly operated delivery bases to speed up its rollout in focus areas.

For each directly managed delivery base, the company rents the building where the base is located in as well as one or two motorbikes and five to six electric bicycles for use in making deliveries. Thus, for each directly managed base it expects to incur cumulative loss of JPY20–30mn during the first 10–15 months in operation and make a security deposit for the building. According to the company, the delivery capacities of each hub will depend on their respective numbers of motorbikes and electric bicycles (assuming full staffing).

Delivery efficiency

As of FY08/20, delivery efficiency (average number of deliveries per hour) was about 1.5. The frequency needed for delivery bases (Sharing Delivery bases) to be profitable varies due to varying rents and personnel expenses. The company said it is easier to generate profits in regional areas where rents are low than in urban areas where rents are high. Further, delivery efficiency starts off low in new areas, so during an aggressive rollout phase, it is hard to boost companywide delivery efficiency. The company said that some 20–30% of the bases in its network were in the black in FY08/20. It said it was targeting somewhat over two deliveries per hour as a benchmark for profitability, and that it would improve delivery efficiency by increasing density of affiliated restaurants and making improvements to its delivery system (such as pickups from several affiliated restaurants in the same direction).

Impact of time to delivery on close ratio

Time to delivery plays a crucial role in increasing the close ratio. According to company data, if time to delivery goes over 60 minutes, the close ratio drops to below 10% of what it would have been for time to delivery of 30 minutes or less.

Delivery quality

Because delivery quality is an important determinant of whether or not users place repeat orders, the company has established its own training center for delivery drivers and otherwise puts a lot of effort into improving delivery quality metrics through a range of other measures, including creating manuals and specialized training materials, standardizing procedures at delivery bases, employing trained specialists to conduct periodic inspections of delivery bases, and conducting sanitation checks of delivery bags. The company says it ensures quality on the delivery front by conducting online interviews and having workers participate in online information sessions.

Developments in in-house delivery (delivery carried out by restaurants)

Demae-can thinks that the ratio of restaurants outsourcing delivery will increase overall due to the difficultly small and medium-sized chains and independent restaurants have in handling delivery in-house. On the other hand, demand due for delivery has risen owing to the COVID-19 pandemic, prompting some major chains to arrange their own delivery personnel. The general benefits of using food delivery are that it meshes well with Japanese food preparation culture, which emphasizes hygiene and quality, and that restaurant staff can use the idle time when deliveries are being made to prepare for orders. As of January 2021, the company says it cannot determine whether the trend will be for restaurants to use in-house delivery once they become more experienced in food delivery, or whether it will be more common for them to outsource the task. The company’s policy is to increase the number of affiliated restaurants that use Sharing Delivery (the company’s delivery platform) and those that do not.

Earnings structure

Basic revenue breakdown

As of October 2021, pay-for-use charges for affiliated restaurants were as shown below, in principle. Pay-for-use charges differ according to order size. There is no base (fixed) charge for initial set-up or monthly operating expenses.

Demae-can service fees: 10% of order cost (before tax, including points cost)

Delivery commissions (no charge when affiliated restaurant handles delivery): 25% of order cost (before tax; 23% until December 31, 2020)

Payment processing fees: Maximum of 3% of order value (before tax; for cashless payments, fees paid to credit card company)

Other than the above, delivery charges shouldered by the user are included in delivery commissions.

From Q3 FY08/20, the company has been disclosing revenue for three classifications: Demae-can service fees (mainly A above): delivery commissions (mainly B above plus delivery fees shouldered by the user), and Other (C above, advertising business, and container and ingredient procurement services). Note: The company said that revenue from payment processing fees is equivalent to cost of revenue, so does not contribute to gross profit.

Basic cost structure

The main costs in delivery services include outsourcing costs (cost of revenue), a variable cost that moves in line with the number of outsourced deliveries, part-time personnel expenses incurred on a fixed hourly basis (SG&A expenses), and rent (SG&A expenses). Marketing spending is a strategic expense, used mainly to boost recognition, acquire new users, and increase the repeat order rate. The details of various cost categories are as shown below:

Cost of revenue: Outsourcing costs (delivery personnel), systems operation costs, payment processing fees

Personnel expenses (SG&A expenses): Part-time delivery personnel expenses, head office personnel expenses, stock-based compensation

Advertising expenses (SG&A expenses): Ad listing expenses, sales promotion expenses

Other SG&A expenses (SG&A expenses): Outsourcing expenses (outsourcing sales), consumables, leasing, fees, other rent

Basic structure by business model