Food Delivery Apps Serve COVID-19 Demand At a Price

Last year, we wrote an entire article about how GrubHub CEO Matt Maloney calls his company one that sells demand generation, not food or logistics. When we wrote that article in April 2019, it was the 5th anniversary of GrubHub’s IPO. This year the company is coming up on its 6th anniversary. Back in 2011, just 10% of delivery orders were made online. Online delivery was a $10 billion business by 2018. That number will undoubtedly balloon in 2020.

Today’s post looks at the companies that demand-based, delivery model during the COVID-19 crisis. They’ve seen that demand skyrocket in the past weeks.

Maloney said he created a company that created a demand for delivery food. He sells this demand to restaurants, ones that wouldn’t be able to fulfill online orders and delivery otherwise. That was last year. This year, the COVID-19 virus has stripped restaurants of their traditional dine-in models, serving up unprecedented amounts of demand for Maloney’s offering.

Maloney said in an interview last year, “The market now is ten times what I thought it was five years ago. It’s because the American public has just adopted digital ordering as their preferred way to engage with their local restaurants.”

Delivery and Pickup Surge During COVID-19

That was before restaurants had to shutter their doors to dine-in guests.  Maloney said in a recent interview that many markets are seeing an uptick in delivery and pickup sales, while others are seeing a drop because consumers assume that many restaurants and bars have closed their doors.

Services that connect restaurants and grocery stores with consumers who want to order digitally are big business today, but which companies are truly thriving?

DoorDash

DoorDash is the top on-demand food delivery service in the market right now. Unlike GrubHub, they call themselves a logistics company and recently knocked that competitor from the top slot.

DoorDash owns 27.6 percent of the market when it comes to the total sum consumers spend. During the COVID-19 crisis, they are running an “Open for Business” campaign, highlighting restaurants that are still offering delivery and pickup.

The company is also temporarily reducing and waiving commission fees for businesses and pledged $20 million in marketing services to local restaurants to give them more business.

GrubHub/Seamless

Grubhub is naturally on this list, as one of the original companies to offer delivery services to the market. Grubhub owns 26.7 percent of the market, trailing just behind services like DoorDash. It says it’s seen a 20% increase in takeout orders overall. Grubhub is not waiving its commission fees, but it is temporarily suspending collections of those fees. It offers marketing services to restaurants but says those using the platform already would likely see a larger volume of orders.

Uber Eats

Uber has seen a drop in the number of rides that its drivers give on its rideshare app, so it is leaning into its food delivery service. Uber Eats had 25.2 percent of the market share and is offering marketing deals with both local and national businesses. Additionally, it is offering daily payouts instead of weekly payouts to the restaurants it partners with and is waiving the delivery fees for many users.

Instacart

This isn’t quite in the same market as DoorDash, Uber Eats, Grubhub, etc. Instacart, a grocery delivery service, is seeing a surge in popularity as more and more consumers are using the service to socially distance themselves. They are planning to onboard a massive number of shoppers to keep up with demand, as demand is so high that grocery delivery slots are booked weeks in advance.

PostMates, Shipt, Other Services

Interestingly, because many of the popular names are so busy, lots of other delivery services are seeing similar

surges as consumers look for ways to get food to their

houses without leaving them or waiting a week for a delivery slot to open.

The Problems With Delivery Demand Apps  

No One is Making Enough Money

Interestingly, for many of these companies that manage the logistics and demand in connecting consumers with the foods they want to buy, the margins are quite slim.

To keep costs low enough for consumers to afford, the delivery apps themselves are finding that they’re not making enough money. They operate off a 20-30% commission on every order in most cases.

That means that in waiving these fees, they are making even less. Then you get into the waiving of various fees. Who loses money in incentivizing consumers to order? Both the restaurants and the demand delivery services themselves.

Add to that recent call for higher pay for the workers placing themselves on the frontlines, and it puts these companies in an interesting spot. I can’t wait to see what the profit margins look like for delivery companies. For restaurants, the outlook isn’t good. Even while selling cocktails to-go and other takeout offerings, that 20-30% that GrubHub takes is hitting restaurants hard.  They’ve already lost one of their channels of income and now have to find ways to keep customers coming even as fear and penny-pinching behaviors become more common.

Workers Are at Risk and Striking

This week, there were walkouts and strikes across many of these demand-based industries. These gig-based workers are now being deemed essential, and they want to be paid like it.

They also want to get the same perks as other essential workers should they get sick on the job. Higher pay and sick leave are issues demand-based delivery companies will face, which cuts into their already questionably proper business models.

Many workers also don’t have health insurance as gig workers, which means that more of them will likely fall ill as the virus peaks in many states.

How will these companies take care of these workers? If they don’t, they risk losing their workforce, as well as garnering lousy press from the public.

This is a crucial time for all businesses, as they rework their “normal” models and try to solve for the complexities that COVID-19 has introduced into the demand ecosystem. While these demand apps are keeping many workers, restaurants, and grocery stores afloat, it’s not a permanent solution. The workers are often underpaid and at risk of becoming sick or spreading the illness. Restaurants can’t live off takeout and delivery alone, as the marketplace for that has become crowded, and their physical locations often have high rent. Many companies, like Grubhub, DoorDash, and Instacart, were barely coming out in the black before COVID-19.

How can they adjust their models to be more profitable for all, without transferring those costs for consumers? What do you think? Do you have any ideas?

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