The pandemic’s effect on food delivery services
The impact of the pandemic has affected companies in various industries differently. However, food delivery companies, have been on the receiving end of better performance unlike their hospitality peers. In fact, the pandemic completely turned around the situation for certain companies.
Billions of dollars worth of losses for the food delivery sector were forecasted at the beginning of the year. One of the most notable food delivery businesses, Grubhub, was actually contemplating “putting itself up for sale after losing its foothold on the market.”
The pandemic has proved to entirely reverse situations like these as more and more restaurants shut down during lockdown periods. As a result, people who were forced to stay indoors turned to food delivery.
How did Uber respond?
As Uber’s core ride business drastically declined, it heavily focused on its delivery services. Sales for meal delivery increased by 135% in the US alone. With positive trends like this, Uber has planned a $2.65 billion acquisition of Postmates to increase its market share and reduce competition. This will allow Uber to control 37% of the food delivery sector in the United States, second behind DoorDash. The company also tried to merge with Grubhub but JustEatTakeaway beat the company to it, now allowing JustEat an entrance into the US market. Uber has also been focusing on diversifying its service portfolio by launching a grocery delivery service in the US. The idea is to create services that consumers form habits off of, to ultimately continue its boom growth trajectory post-pandemic.
How did DoorDash respond?
DoorDash has been taking full advantage of the soaring appetite of customers for its services and has secured an opportunity for an initial public offering. It was able to secure $2.5 billion in capital to expand from its original food delivery service to offer convenience and grocery store products as well. DoorDash also expanded its product portfolio to create Storefront to support restaurants in listing their stores on DoorDash without the charge of commission on items sold. It also set up Self-Delivery which allows restaurants to be listed on the app but use their own delivery services. DoorDash is aware of the benefits it is receiving from current circumstances and is not ignoring the possibility of its soaring demand potentially decreasing once the pandemic starts to settle. “Warnings in its IPO paperwork [that]… the circumstances that have accelerated the growth of our business stemming from the effects of the Covid-19 pandemic may not continue in the future.” Nevertheless, consumer dependence on such services continues to grow the longer the pandemic prevails, which is why DoorDash is now valued at $38 billion.
The holiday season
Food delivery services are now increasingly focusing on speed of delivery as a key source of competitive advantage – especially as orders increased during the holiday season. For example, Postmates is launching a new business model for retail that allows customers to get “instant delivery from clothing, home, beauty and wellness retailers, and allowing the delivery company to broaden its reach.” It seems as though companies that initially started off in the food delivery sector are now beginning to dip their feet in offering services similar to that of Amazon. Mike Buckley, the senior vice president of Postmates, notes that there has been a shift in consumer habits as they increasingly transition to online shopping. Companies are allowing faster provision of these products as they work to increase the speed of their deliveries.
This shows the new opportunities the pandemic has created for the food delivery industry. The use of digital marketplaces is now being broadened to provide a bridge for customers to virtually shop for both household essentials and recreational products from retailers.