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Is Food Delivery a Fad or Here to Stay?


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November 22, 2020

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 adaptations.

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.

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About the author

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Brandon Hayes

Managing Director, Private CFO®

In 2011 Brandon opted to forego a long-term career in corporate America to join oXYGen Financial because he was impressed by the vision of creating a premier independent financial services firm, which strives to provide unbiased advice to the X & Y Generations.

A native of Westlake, Ohio, Brandon currently lives in Atlanta with his wife Aly, daughter Maryn, son Turner, and their black lab Pepper. He's the youngest of three children and played soccer through college at Elon University. He's an avid runner and enjoys cheering for Cleveland sports teams despite some pretty rough years.

CERTIFIED FINANCIAL PLANNER™ and MBA from Georgia State University in Entrepreneurship. Brandon holds his Series 7 (General Securities Representative), 63, Series 65 (Investment Advisors Law) and Georgia Life, Health and Variable Insurance licenses.

The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation.

Background and qualification information is available at FINRA's BrokerCheck website.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board's initial and ongoing certification requirements.

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