Deliveroo (LSE: ROO) shares were down more than 5% yesterday. Despite this fall, the stock is up almost 20% in the past month and has increased by approximately 30% since its London stock market debut earlier this year.
I’ve covered Deliveroo shares extensively and the stock is still on my watch list. But there’s more news regarding the company, which is worth covering in detail.
Partnership
Food delivery is not enough for the company. It wants to expand and diversify its offering. Deliveroo has partnered with the chemist chain Boots to deliver its products. This means that customers will be able to order items such as medical supplies and make-up.
This is part of a pilot scheme that launched on Tuesday. It’s being trialled in 14 stores, which include locations in London, Birmingham, Edinburgh and Nottingham. It comes after UK Covid-19 restrictions have been lifted and beauty product sales have begun to pick up as more people are socialising.
It’s worth noting here that Boots is owned by the US company, Walgreens Boots Alliance. And if this pilot scheme is successful, it may be rolled out to all pharmacy stores nationwide. This could help boost sales and push Deliveroo shares higher.
The deal works well for both parties. For Boots, it means quicker delivery times to consumers, thereby improving its customer service. For Deliveroo, it has another reputable brand under its belt and it also diversifies its revenue stream.
Early days
As I said, it’s still early days and the pilot scheme is being run to see if there’s any consumer appetite for an on-demand service. Let’s not forget that the company is also testing the waters with fast grocery delivery. It recently announced a deal with Waitrose.
Boots has acknowledged that this service is useful for people who are unwell and can’t leave the house or parents who quickly need supplies for their children. That’s all well and good, but I’d like to see evidence that consumers are using this before I dip my toe in.
Also, now people are socialising more and office workers are slowly returning to their desks, I question how many will actually use this service? There are competitors like Amazon that could simply shorten their delivery times. Other than Boots’ own brands, many of products sold by the pharmacy chain are likely to available on Amazon’s platform.
Recent news
It has been a few active months for Deliveroo. The company increased its full-year guidance after a strong second quarter but it did warn that extra investment could dampen profit margins.
It also announced that it was ending its operations in Spain. In order to achieve and maintain a competitive position in the country, it required significant investment. So it decided to exit and focus its efforts elsewhere.
Should I buy?
The Boots partnership will be a good thing if it’s successful. It’s good to hear that it’s diversifying away from food delivery, but this is an early move. Deliveroo shares are still on my watch list and I’ll be monitoring the company’s announcements to see its progress. But for now, I’m not buying.