Is Food Delivery a Fad or Here to Stay?
DoorDash recently announced plans to go public - a move that was put on hold earlier this year as the country shut down. Food delivery services saw an uptick in sales over the last 6 months due to pandemic induced stay-at-home protocols. Food Delivery is one of several industries well positioned in the current environment. Despite increased sales and a growing user base, DoorDash has yet to turn a profit. It's still valued at $16 Billion.
Uber Eats has enjoyed a similar story. Since March, meal
delivery segment success has propped Uber while ride share revenue plummeted.
How does the business model work? You've probably noticed
higher menu prices through these delivery services, but there are many
Delivery service business revenue streams:
- Revenue share from restaurants - 15%-40% of order
- Delivery Fees - i.e. $1-$5 per order
- Premium advertisement and promotional services for restaurants
- Third-party advertisements
- User subscriptions
How are drivers paid?
- Pickup fee
- Delivery fee
- Per mile fee
Consumers have demonstrated a willingness to pay for the convenience of clicking a few buttons to have dinner arrive 30 minutes later. Though, realize that while you are supporting local restaurants, your order through third party apps like Uber Eats and DoorDash often cut into the restaurant's profits.
As COVID-19 restrictions lift and restaurants re-open, traditional
dine-in meal revenue will recoup. However, it's likely that consumer habits developed
through the pandemic will have a lasting impression on the restaurant industry.
Fitness (think Peloton), Entertainment (think Netflix), and Shopping (think
Amazon) are other industries permanently shaped by the pandemic.
In June of this year, DoorDash partnered with CVS for
same-day delivery of grocery and non-prescription products. In July, Uber
announced it would be acquiring Postmates, and while the Postmates app will
continue to run separately, this effectively eliminates a competitor and makes
the business the second-largest delivery service in the U.S. (behind DoorDash).
Pricing in the food delivery market could potentially become a little more
rational because of this.
Businesses that adapt, to situational or consumer demands,
will continue to thrive.