The food delivery business worldwide stands at $83 billion dollars with an annual growth rate at 3.5% for the next five years. The traditional model of delivering food, which is ordering by phone to local restaurants, still make up 90% of market share. But with the rise of digital technology and increasing consumer demands, food ordering business is expected to capture bigger audiences and provide maximum convenience and transparency.
Key Facts
- Customers in 2030 will order mostly through their smartphones and computers.
- 10% of Americans use delivery services at least once a week and 70% use quick-service restaurants.
- Consumer spending on pizza delivery in the U.S. amounts to $9.8 billion USD and 24% of the market share is composed of Domino’s Pizza.
- Grubhub makes up the largest online delivery restaurant service in the U.S. in terms of gross sales. There are currently 44,000 restaurants on Grubhub’s platform.
- 57% of Millennials, or 73 million people in the U.S. say they prefer to have restaurant food delivered so they can watch movies or TV shows at home.
- By 2020, restaurants who won’t offer online food ordering & delivery will lose nearly 70% of their customers.
- 63% of consumers find delivery food to be more convenient than going out to restaurants.
- Customers are 38% more likely to order delivery from restaurant foods than they would have two years ago.
Industry Trends
Mobile phones are becoming increasingly convenient and delivery food market is growing at rapid speed due to consumers’ changing lifestyles and eating patterns. The growing demand for quick access to food at cheap prices and having access to a variety of categories are fueling the expansive growth. Benefits from ordering online include attractive discounts, reward systems, multiple payment options, and the convenience of getting food at your doorstep. Below are the top three trends that are dominating the food delivery market.
Third-Party Delivery
To stay competitive, local restaurants are beginning to adopt third-party delivery services to expand their service footprints. They want to reach as many audiences as possible without compromising the quality of their food. But using a third-party delivery service also means restaurants lose a chunk of their delivery operations as well as their revenue. Big chains are able to hire several third-party services because they have the budget to do so. But for small mom-and-pop stores, hiring other services may very well exceed their price range. Hence, they have the option to build their own in-house fleet. This way, they don’t hand over a large chunk of its delivery revenue to third party providers.
Delivery Data
In April 2019, McDonalds spent nearly $300 million to acquire a startup that focused on big data analysis. Tracking data is highly significant to improving delivery services; it’s the best way to stay ahead of the competition. With aggregated data, you can measure, analyze, and improve your performances to improve customer care, marketing and branding, and external relations with third-party operations. Data also helps the food industry better understand customer preferences and tastes. A leading food delivery company Grubhub utilizes data to identify patterns in takeout ordering, finding the differences between gender specific tastes. Another startup Munchery leverages data to identify which menu items need improvement or which items could be eliminated from the list.
Online Grocery
Ways of buying groceries have evolved over the years. Delivery services have helped traditional grocery stores to expand their business operations and cover a wide array of customers who aren’t available to come down to the store. Online grocery shopping is growing at rapid speed because customers are demanding more conveniences and control over how and when they are order groceries. Currently in the U.S., Walmart is dominating the online grocery market. The nationwide retailer offers grocery pickup and delivery services in almost every single state. Overall, the online grocery sales in the U.S. have grown 15% in 2019 and they now account for 6.3% of the households’ total grocery-related spending.
Food Delivery War
Competition is fierce in the food delivery wars. Just last month, DoorDash became the leader in the U.S. by taking 35% of the meal delivery market. Publicly traded companies like GrubHub and Uber Eats have taken 30% and 20% respectively. Since October of 2018, DoorDash sales have increased by 114%. While DoorDash is dominant in areas like Washington D.C., Houston and San Francisco, GrubHub has the most customers in New York City. Uber Eats takes the lead in Miami and Postmates is at the top in Los Angeles. On October 29, 2019, shares of GrubHub plunged 43% due to their disappointing performances in the last quarter. This was the stock’s worst day of trading since going public in April 2014. Analysts believe that Grubhub’s biggest problem is not having enough loyal customers. In trying to win customers against other competitors in the market, GrubHub relies heavily on delivery promotions and discounts. But this can only go so far as other players are offering similar services.
Investing in Food Delivery
While Grubhub’s stocks fell significantly this year, other more stable firms are doing better than expected. Through emerging technologies, there has been a shift in consumer behavior and lifestyle. One company that remains consistently growing is Amazon. Amazon, alongside Walmart, is the leader in online grocery shopping. Over the past decade, Amazon has brought forth a total return of 1,232% according to CNBC calculations. With food delivery, you have to look at the macro level trends. It’s not just the food delivery services themselves that will benefit. You have to look at grocery chains, fast food stocks, payment systems, restaurants, and e-commerce. There are several avenues that investors can take in order to ride the popularity of food delivery trend.
