Ordering food online has gotten so easy it only takes a few taps of the thumb to get a favourite meal delivered right your door. This popular tech trend appears to be a new way for investors to enter the restaurant industry, where sales are projected to reach
$863 billion in 2019. Nearly $20 billion of that will come from off-premises food delivery.
The global online food delivery and takeaway market is growing and only expected to grow farther. Research firm
Big Market Research forecasts a growth rate of more than 16.20% from now until 2025. Could this be a golden egg ready to be cracked into a delicious omelette, or an over-hard eggs benedict?
Online food delivery takes the process of ordering food to your door from numerous restaurants (or liquor stores in some markets) via an app or website. Offering a wide variety of dishes from exotic cuisine to fast food, coupled with the option to pay online, the options and convenience of food delivery have been its major driving factors. The average consumer is bogged down with a relentless schedule where work and life tasks outnumber hours in the day and getting around a crowded city can be a challenge on its own but getting around a smartphone app is as easy as can be.
As if ordering via a few swipes and taps of a phone wasn’t appealing enough, users can track the process and delivery along the way to their door. Not only is the delivery process transparent, but the food is accounted for, as is the cost. However, one factor that the Big Market report points out as impeding the market’s growth is a barrier to entry. This is because of high logistical complexities and tedious development, as well as the implementation of systems that accept online orders.
Even so, investors are often quick to cling to a fledgling market that shows potential. How popular is this service and is there a value in investing into it at this stage?
Major players:
According to a recent survey, the most popular app is
Uber Eats, an offshoot of popular p2p rideshare company
Uber (NYSE: UBER). Based on its recent IPO filing,
Business Insider determined that its $7.9 billion in gross bookings would suggest it had received around 439 million orders last year. Taking into account certain expenses, its revenue rose around 150% in 2018 to $759 million. Uber Eats’ supremacy in the market is rivaled by the new merger between
Just Eat and Takeaway.com, whose combined orders rose by about a third to 355 million last year, generating $8.2 billion (USD) in gross bookings. Just Eat also possesses popular options such as
SkipTheDishes.
The standout advantage for this market is its
scalability. The more partnerships these operators sign means greater marketing exposure for them and added delivery reach for the restaurants. Uber Eats has partnered with more than 220,000 restaurants in 63 countries, while Takeaway.com and Just Eat have a combined 155,000 partners in 23 countries. Meanwhile, delivery juggernaut
Amazon.com (NASDAQ: AMZN)
led financing into another meal-delivery service
Deliveroo, which has raised over $1.5 billion.
While Deliveroo exists at a comparable level to Just Eat and Takeaway.com, it stands to gain a significant share on the
market when bolstered by Amazon’s global reach and delivery know-how. With 80,000 restaurant partnerships in 14 countries it earned roughly $337 million in revenue in 2017.
Another major player in this space is
DoorDash, which has the widest selection of restaurants in the US and also operates in Canada. In late July 2019, it announced that it had signed an agreement with payment processor
Square Inc. (NYSE: SQ)
to acquire all-in-one food ordering platform Caviar for $410 million in cash and stock. This unison aims to combine the streamlined acceptance system of online and in-person orders for merchants between DoorDash and Square, along with Caviar’s portfolio of premium restaurants and leading technology.
Even market pioneer
GrubHub Inc. (NYSE: GRUB) has gotten in on this action through its
new delivery deal with
Shake Shack Inc. (NYSE: SHAK), which has given both companies a boost. GrubHub’s stock has been a struggling since the beginning of the spring. This time last year it was worth nearly $130 but has been showing early signs of recovery.
Challenges:
There are many providers for this service right now, but is the overall market a sensible venture? There are some key issues to consider.
The most significant is the challenge these companies face when it comes to turning a profit. It is hard to offer such a quick and broad service with the high margins that come with delivery. Uber and Amazon are approaching their investments with deep pockets, clearly putting themselves ahead of the pack when it comes to crossing this hurdle.
Scalability is one benefit emerging players are reaching for, but there is also the oblivious risk that no one knows how big the delivery market is. The delivery sector will always be an offshoot of the restaurant industry. According to the National Restaurant Association's 2019
“State of the Industry” report, half of consumers say the availability of delivery makes them more likely to choose one restaurant over another.
More than food on the menu?
First it was food delivered within minutes, then alcohol, what about … anything?
Toronto-based
ParcelPal Technology Inc. (CSE: PKG) is offering more than a meal and promises users of its app “anything you want in less than an hour”.
The technology-driven logistics company has been operating in Vancouver, Calgary and Saskatoon and is now focusing its expansion plans in Ontario,
beginning with Toronto, as part of its on-going Canada wide distribution strategy.
Tip your server:
The potential around this innovative method to capitalize on the gigantic revenues gathered by the restaurant industry is going to appeal to investors, it is quite challenging to single-out a winning company or even a winning method at this point. Investors may want to spend their time deepening their due diligence in this market while the mega players assess the value of their entries into food delivery, the established operators define higher profits and the newcomers prove whether they can make good on their ambitious promises.