7 ways COVID-19 supersized food delivery

December 16, 2020 11:07 AM

Demand for food delivery has been strong during the pandemic, building on what already had been a strong demand for the $27 billion industry, according to NPD Group. In the pre-pandemic environment, food deliveries had grown by 23% over a four-year period, representing 3.1 billion customer visits — but as people have been cooped at home, deliveries have skyrocketed; Uber Eats saw 152% growth in food deliveries in New York in June 2020.

Given that travel has been severely impacted by the pandemic, it’s the airline and hotel rewards cards that have needed to reinvent themselves to keep up their consumer appeal.

“Because the convenience and safety of being able to order food delivery is growing for so many, it seems that certain credit card issuers are shifting to this as a popular benefit to accommodate this new interest,” said Nathan Grant, senior credit industry analyst at Credit Card Insider.

In a period of a little over two years, including the first five months of the pandemic hitting the U.S. (March through July) the market share positions of the leading food delivery companies have taken a 180 turn. According to data from the DoorDash S-1 document it used to file for its IPO in December, DoorDash went from third place with 15% share of food deliveries at the end of January 2018 to first place in July 2020 with almost half (47%) of the market.

Expansion has been key to DoorDash’s growth as it now counts over 340,000 merchants participating on its platform and more than one million delivery drivers it calls “Dashers” bringing food to hungry customers.

In light of DoorDash’s growth, second-place rival Uber Eats has been forced to hunt for strategic acquisitions to maintain its position. In June, Uber Eats sought to buy rival Grubhub, according to media outlet Mashable. This would have given the combined entity nearly the same market share as DoorDash. However, competition from Europe came in to steal away Grubhub, as Dutch rival Just Eat Takeaway.com acquired Grubhub for $7.3 billion to enter the U.S. market.

Not dismayed by the loss, Uber then turned to smaller food delivery rival Postmates, and made it an offer it couldn’t refuse. In a $2.65 billion all-stock deal, Postmates agreed in July to be folded into Uber Eats. The deal is expected to close in the first quarter of 2021, pending regulatory approval.

Food delivery services and demand are mostly concentrated in the larger cities with the top 50 metropolitan areas (tier 1 and 2 cities) accounting for 76% of all food deliveries, and the top seven cities amounting to over one third (36%) of the market based on data in the DoorDash S-1 report.

A combination of factors may lead to the high urban concentration of food deliveries — such as more restaurants and people per square mile, greater availability of gig workers to deliver the food, shorter distances that can potentially be covered by bicycle and higher frequency of consumers eating out or a greater propensity to eat out.

Yet the pandemic also created an unforeseen dynamic where many buildings closed during lockdowns, and companies asked their employees to work remotely. This left many consumers with fewer dine-out options than existed pre-pandemic. Additionally, as many restaurants struggled to survive, the move to selling food online through a delivery company became a lifeline that few could ignore.

Lockdowns also had the effect of driving up the average transaction value of orders.

The biggest increase experienced during the pandemic was seen by Grubhub, based on data from Edison Trends, which showed that the average order was $41 in April as the lockdowns were in their peak, up from $31 seen in September 2019.

This 30%+ increase in average order value could likely be due to consumers ordering an extra meal for consumption later on. For example, some customers may have been ordering lunch and dinner together, wanting to save on delivery fees. It could also be due to the fact that schools were also locked down, and now children were present in homes during the day when they would have taken lunches to school or purchased lunch in a cafeteria.

Growth in average order values grew for DoorDash and Uber Eats as well, both by $4 or about 12% and 14%, respectively.

It’s difficult to say how much of the pandemic ordering affected DoorDash’s average order value compared to its recent acquisition of rival Caviar from Square, a deal that closed October 31, 2019. Traditionally, Caviar had some of the highest average order values in the industry, often exceeding $40, according to Edison Trends. However, Caviar was significantly smaller, with about 2% market share when acquired and 1% in July 2020, according to the DoorDash S-1 document.

DoorDash made 17% more in the first half of 2020 than it did in all 12 months of 2019.

DoorDash reported that the total number of orders it processed during the first six months of 2020 was 307 million. That’s 16% more than the 263 million orders it completed in all of 2019, and that was done in just six months. DoorDash only completed 83 million orders in the 12 months of 2018 — barely one quarter of DoorDash’s first six months of 2020.

DoorDash filed for the IPO in February, just before the pandemic hit full force. It should be noted that DoorDash estimates that only a small portion of food deliveries are directly served by delivery companies, and a large portion are served by the restaurants themselves and order as take-out.

Examples of major restaurant chains with large delivery fleets competing with DoorDash include Domino’s, Papa John’s, and Pizza Hut. Each of the three chains launched massive hiring sprees starting as the lockdowns began in March and continuing through December. The hiring target for new delivery drivers at Pizza Hut was 30,000, at Papa John’s was 20,000 and at Domino’s was 10,000.

One of the biggest impacts the pandemic has had on the food delivery business is the effect it had on Uber Technologies Inc., parent company of Uber Eats. Rideshare, or mobility as Uber calls it, accounted for 76% of Uber’s gross bookings in 2019, while food delivery accounted for just 22% of gross bookings in the same year. By the second quarter of 2020, mobility had fallen to 30% of gross bookings, while food delivery accounted for 70% of Uber’s gross bookings in that quarter.

The pandemic transformed Uber from being predominantly a ridesharing company competing with the likes of Lyft and Grab to largely a food delivery company competing with Grubhub and Postmates.

Uber reported that in New York, which accounted for about 8% of the food delivery market, it was experiencing double- and triple-digit growth rates as the pandemic lockdowns were in full force. Uber saw its food delivery gross bookings jump in April by 73% in New York compared to the same month a year earlier. This growth accelerated in May and then again in June, when its food delivery bookings were up 152% compared to June 2019.

In Uber’s third quarter, ending September 30, it made 8.55 million food deliveries, up from 3.66 million a year earlier. Delivery revenue for the three months was $1.45 billion, up from $645 million for the same period a year earlier.

Leading up to the pandemic, it was clear that Grubhub was struggling for growth despite its acquisitions of Eat24, LevelUp, Tapingo and OrderUp. For several quarters, Grubhub’s order volume — which it calls Daily Average Grubs or DAGs — had consistently hovered between 450,000 and about 500,000. Only during the pandemic did Grubhub start to see a measurable boost to its business.

In the first quarter of 2020, Grubhub saw its DAGs jump to 516,300, which was on par with its first quarter of 2019 but still up almost 15,000 daily orders from the last quarter of 2019. For its second quarter of 2020, Grubhub's volume skyrocketed to almost 650,000 daily orders. This continued to accelerate into its third quarter, with daily average order volume reaching over 668,000.

Acquisitions, restaurant coverage expansion and marketing efforts over the past two years fueled a steady growth in the number of active diners at Grubhub, reaching just over 22 million before the COVID-19 pandemic hit. Grubhub had experienced a growth of about one to one-and-a-half million active diners each quarter since the fourth quarter of 2018.

When the pandemic caused a nationwide lockdown in mid-March, Grubhub's number of active diners shot up quickly. In the second quarter of 2020, Grubhub added about 3.5 million active diners giving it a total of 27.5 million active diners.

This total rose again at the end of September, as Grubhub announced its third quarter results. Its total active diners now had reached 30 million, representing a 41% increase over the same quarter in 2019 where it only had 21.2 million active diners. Grubhub also reported that its gross food sales in the third quarter were $2.4 billion, a 68% year-over-year increase from $1.4 billion in the third quarter of 2019.