During COVID-19, food delivery platforms became a lifeline for people as they were instructed to stay at home and restaurants were ordered to close their doors for indoor dining. Reports show that the global food delivery market, which has tripled since 2017, is worth more than $150 billion, and the U.S. market alone has doubled during the pandemic.
Even as the food delivery market continues to expand, its economic future is still uncertain. While delivery orders may have skyrocketed and valuations have soared during the pandemic, food-delivery platforms have still been losing money, mostly due to small margins and high labor costs.
In an effort to improve their margins, the platforms increased their restaurant delivery service percentage to 10% – 40% of the total cost of each order. Due to the strain the increase put on the restaurant business, local governments across the U.S. mandated capping these fees from 10-15%, which San Francisco and New York have made permanent. This permanent cap will likely put even more pressure on platform growth and margins.
Branding, speed to market, offerings available, and adaptation to consumer preferences will help determine what food delivery platforms succeed. But to sustain their business model, increase revenue, and expand to new markets, delivery service providers may want to turn to consolidation.
Consolidation in the U.S. and Europe
In 2018, Amazon bought a stake in UK-based Deliveroo. In December of the next year, Uber acquired Postmates for $2.65 billion and Just Eat Takeaway acquired Grubhub for $7.3 billion in June 2021.
However, it seems that a single acquisition can lead to more acquisitions. At first, it was a smart move for Just Eat Takeaway to acquire Grubhub, but the delivery fee caps that many U.S. cities implemented after the acquisition had a significant impact on their progress. The caps will cost Takeaway $116 million in earnings and their shares have plummeted 20%.
As a result, management at Takeaway has been exploring more opportunities for acquisition, which, according to analysts, include some of their investments in Brazil, the U.S. and France.
Exploring Multichannel Ventures
In the next few years, your dream of being able to get almost anything delivered straight to your door in a matter of minutes might be a reality. In addition to large consolidations, food delivery platforms have been testing and acquiring new partners through multichannel ventures.
One of the hottest new opportunities that platforms in the U.S. and in Europe have been capitalizing on is grocery delivery. With the support of one of its biggest shareholders, Amazon, Deliveroo has been among the first and most successful in partnering with grocery chains.
Uber has also thrown their hat into the grocery delivery ring as they’ve recently struck deals with Britain’s Sainsbury’s and France’s Carrefour.
By diversifying its offerings with these new ventures, these companies are able to move toward profitability by widening their margins and taking over more of the market share. With the way the industry is going, the last delivery platforms standing will be those that’re able to be agile and be able to deliver virtually anything.