How Food Delivery Services Are Leveraging Their Strengths to Serve During Pandemic

Food Delivery Services: Making Merger Moves and Stepping Up During the Pandemic

Analysis of the major food delivery service players in the U.S. market

The food delivery service industry has been a busy one with millions of consumers stuck at home during the COVID-19 pandemic. Food delivery services in the U.S., including DoorDash, Grubhub, Postmates and Uber Eats, have been leveraging their strengths to help restaurant partners, consumers and drivers get through this difficult time. Meanwhile, the marketplace is contracting with pending acquisitions between Just Eat and Grubhub, and Uber and Postmates. We’ll identify the major players in the food delivery service industry, share their strengths, how they’ve operated during the pandemic, and what’s next.

The Players – Who’s Delivering What

DoorDash: DoorDash began in January 2013 with a mission to help merchants deliver food to customers. Originally named Palo Alto Delivery, the founders, who were students at the time, delivered food to students at Stanford. They changed their name to DoorDash in June 2013, and the company has grown ever since, starting with $2.4 million in seed funding from its original investors.

Three weeks ago, the company closed its Series H funding round with $400 million from new investors. The funding brings DoorDash’s current valuation to just under $16 billion. The privately-owned DoorDash lost $450 million in 2019, according to The New York Times. In March, the company confidentially filed to go public, but to date, has not proceeded with its initial public offering.

Today the company works with more than 300,000 restaurants in hundreds of cities and countries. Restaurant partners include locally owned restaurants as well as familiar chains like The Cheesecake Factory, Chipotle, McDonald’s and Wingstop. To help DoorDash customers save on delivery fees, the company offers a DashPass subscription. For $9.99 a month, subscribers get free delivery and lower service fees from participating restaurants on orders of $12 or more.

In addition to being worth nearly $16 billion, DoorDash takes its place in the communities it serves to heart. The company launched its Project DASH program in January 2018 to donate surplus food to hunger relief nonprofits. In the first year and a half of the program, DoorDash helped connect 1 million pounds of excess food to 250 nonprofits serving people in need. That’s pretty incredible. DoorDash also regularly recognizes important social causes and movements like Immigrant Heritage Month, supporting Black-owned businesses, and standing together for justice.

Strengths: valuation, reach, social justice initiatives

Grubhub: Founded in 2004, Grubhub is one of the earliest food delivery services in the U.S., outside of standard pizza or local restaurant delivery. Grubhub features more than 300,000 restaurants in its app, and the company partners with more than 200,000 of those restaurants in over 4,000 U.S. cities. Grubhub also operates the Seamless, LevelUp, AllMenus and MenuPages brands. In 2014, Grubhub went public. It is traded on the New York Stock Exchange under the ticker symbol GRUB.

Grubhub also operates a food service delivery subscription service, Grubhub Plus. Subscribers who join Grubhub Plus pay a monthly fee of $9.99. In exchange, they get unlimited free delivery from participating restaurants, a donation match when customers donate their change to the Grubhub Community Relief Fund.

In 2019, Grubhub provided nearly $6 billion in gross food sales to local takeout restaurants. They process over 516,000 orders every day, serve close to 24 million active customers, and they have sent more than $3 billion total tips to Grubhub drivers. The company celebrated its 15th anniversary last year and the 20th anniversary of Seamless. Grubhub and Seamless merged in 2013.

In its first quarter 2020 earnings results, Grubhub reported total revenue of $363.0 million, a 12% increase year-over-year, and a net loss of $33.4 million, a decrease from a $6.9 million gain for the prior year period. Gross food sales for the quarter were $1.6 billion, an 8% increase year-over-year. In the earnings report, Grubhub president and CEO Adam DeWitt said the company had seen a “significant uptick in new diners and orders from existing users” because of the COVID-19 pandemic.

Strengths: longevity, brand recognition, reach and social justice initiatives

Postmates: Launched in 2011, Postmates operates a slightly different model. This delivery service delivers food, drinks (even beer), groceries, party supplies, household goods, and other items available for delivery or pickup. The company works with 600,000 merchants, has a fleet of 500,000, and is available in 4,200 cities. The company employs more than 1,000.

Postmates has a subscription product called Postmates Unlimited. For $9.99 a month, or $99.99 a year, Postmates Unlimited subscribers get free delivery on every order over $12. They also promise no surge pricing, and subscribers get special offers and access to exclusive giveaways and events. Postmates estimates the average member saves $185 a year.

Strengths: broad reach, delivers more than food

Uber Eats: A subsidiary of Uber, Uber Eats is one of the youngest food delivery services. The service launched in 2015. It now reaches over 500 U.S. cities and dozens of other countries. In its first quarter 2020 financials, Uber reported 54% growth in Uber Eats, year-over-year. Uber Eats adjusted ABIDTA was a loss of $313 million. The company recently announced its decision to discontinue Uber Eats service in eight markets including, the Czech Republic, Egypt, Honduras, Romania, Saudi Arabia, Uruguay and Ukraine.

Like their competitors, Uber Eats offers a subscription, Eats Pass. For $9.99 a month, Eats Pass subscribers get free delivery and a 5% discount off orders over $15. Uber Eats offers a one-month free trial to entice diners to give their subscription program a try. The ultimate goal with any of these services, of course, is to develop brand loyalty.

Strengths: name brand recognition and year-over-year growth

Other Food Delivery Services

Deliveroo: Founded in 2013, Deliveroo is another popular food delivery service. The company is based in London, and they operate in over 200 cities in 12 countries including Australia, Belgium, France, Germany, Hong Kong, Italy, Ireland, Netherlands, Singapore, Spain, United Arab Emirates and the United Kingdom. It is available in the United States.

Strengths: international reach beyond U.K.

Instacart: Instacart partners with stores and some restaurants to deliver food, meals, pet supplies, alcohol, household goods, prescriptions, and other items to customers. Instacart offers an Instacart Express subscription for $9.99 a month, or $99 per year, following a two-week free trial. Subscribers receive free delivery on all orders over $35, a reduced service fee on all orders, and average savings of $7 per order. During the pandemic, Instacart launched two new features to assist shoppers: Fast & Flexible, and Order Ahead.

Strengths: delivers more than food, partners with national retailers like Costco and Petco

DoorDash is Top Dog

Due to the coronavirus crisis, market share numbers in the U.S. are skewed, but right now DoorDash is leading the pack in terms of straight food delivery with Uber Eats nipping at its heels. The data shown below represents U.S. usage of consumers’ favorite food and grocery delivery services during the COVID-19 lockdown. The data measured was for the period May 25 to 31, 2020 from 2,137 survey respondents who were 18 years or older. These numbers don’t necessarily compare apples to apples, however. Amazon, Domino’s, Instacart, Postmates, Hello Fresh and Blue Apron offer different types of products and services.

Source: Statista

How Companies Are Handling COVID-19

These are unprecedented times, and food delivery services are doing their part to keep their restaurant partners, drivers and customers safe.

DoorDash: In response to the coronavirus pandemic, DoorDash expanded the Project DASH program to ensure that vulnerable communities are getting the food they need during the COVID-19 pandemic. The company has also partnered with United Way and launched a Main Street Strong program to help restaurants trying to recover from lengthy business closures. Other related measures to address the pandemic include the “no-contact delivery” option. When customers check out in the DoorDash app, they have the option to select “leave it at my door” and to include additional instructions, if needed.

Grubhub: Like DoorDash, Grubhub offers contact-free delivery on all orders by default to minimize face-to-face interactions. Customers can also choose curbside pickup if they want to pick up their own meals without going into the restaurant. On the drivers’ side of things, Grubhub has offered to provide delivery partners with free personal protective equipment (PPE), including hand sanitizer and masks. They can refresh their supply ever 30 days. Another change is that Grubhub has encouraged restaurants to offer family meals, since more families are spending time at home together. They created a family meal guide to help restaurants determine how to update their menus and get more customer visibility.

Postmates: On March 13, Postmates posted a blog on the World Health Organization’s guidance to do five simple things to stop the spread of coronavirus: wash hands, cough into your elbow, don’t touch your face, stay more than 6 feet apart, and stay home if you are sick. The company also launched the Postmates Fleet Relief Fund to help drivers cover medical expenses related to COVID-19 and to provide up to two weeks of lost income if they are required to self-quarantine for any reason. They also launched no-contact deliveries and a small business relief pilot program to help businesses try Postmates for delivery of their products.

Uber Eats: Like its competitors, Uber Eats has implemented a number of actions to help support its workers and its customers. Customers can choose no-contact delivery for their meals. Drivers can get cleaning supplies for their vehicles to keep them disinfected. The company donated 10 million free rides, meals and deliveries to frontline healthcare workers, seniors and others in need.

Food delivery services are stepping up their game during the pandemic.

Who Is Buying Whom?

Just Eat buys Grubhub

Amidst the pandemic, there is some wheeling and dealing going on in the food delivery service industry, as the industry contracts with pending mergers. In June, Just Eat made a deal to acquire Grubhub for $7.3 billion in an all-stock deal. This will make the company the largest food delivery service in the world, outside of China. Just Eat is based in Amsterdam, while Grubhub is based in Chicago. In 2019 alone, the combined companies delivered 593 million food delivery orders. They have approximately 70 million total users globally. Uber had been negotiating with Grubhub, but when negotiations proved unsuccessful, Just Eat swooped in to save the day.

“Like ridesharing, the food delivery industry will need consolidation to reach its full potential for consumers and restaurants. That doesn’t mean we are interested in doing any deal, at any price, with any player,” Uber said in a statement.

Uber Buys Postmates

Uber wasn’t kidding. Earlier this week, Uber announced that it plans to buy Postmates for $2.65 billion. The deal will combine Uber’s Rides and Eats platform with Postmates’ food and goods delivery services. The combined size of these two organizations will make it a strong rival against DoorDash who holds the number #1 market share right now.

“Uber and Postmates have long shared a belief that platforms like ours can power much more than just food delivery—they can be a hugely important part of local commerce and communities, all the more important during crises like COVID-19. As more people and more restaurants have come to use our services, Q2 bookings on Uber Eats are up more than 100 percent year on year. We’re thrilled to welcome Postmates to the Uber family as we innovate together to deliver better experiences for consumers, delivery people, and merchants across the country,” said Uber CEO Dara Khosrowshahi.

The big question is if these acquisitions will secure the blessing of regulatory authorities. Just Eat is located outside the United States, so its combination with Grubhub does not place a significant threat to U.S. food delivery services. A combination of Uber Eats and Postmates might be of greater interest to regulatory agencies, though they could argue they offer different services.

What’s Next?

What’s next is anyone’s guess. We are still in the midst of the COVID-19 pandemic, and people continue to order in. We don’t anticipate that trend will change anytime soon. In fact, in March 2020, 41.7% of consumers surveyed said they were likely to purchase food delivery online and 29.5% said they may purchase. The longer people stay home, the more likely they will be to order in.

We expect each of the food delivery services to see significant growth in the second and third quarters of the year. For those who are posting double-digit million-dollar losses, this will help turn things around. We expect the service providers will find new, innovative ways to reach American consumers as a post-COVID-19 world emerges.

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