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Nov. 27, 2020, 7:00 a.m. EST

The pandemic has more than doubled food-delivery apps’ business. Now what?

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By Levi Sumagaysay

Zachary Davis, owner of The Glass Jar restaurant group in Santa Cruz, Calif., said he intentionally avoided working with food-delivery apps before the COVID-19 pandemic because the costs to his business just seemed too high.

But when his county issued shelter-in-place orders, “we were effectively shut down. We closed for a couple of days, took stock and realized it was the only way to keep our business open,” he told MarketWatch.

Davis is not alone. Delivery apps have become more important for both business owners and their customers as more people order takeout and groceries during the coronavirus pandemic. DoorDash Inc.’s /zigman2/quotes/222973991/composite DASH +0.58% recent filing for an initial public offering and earnings reports from Uber Technologies Inc. /zigman2/quotes/211348248/composite UBER -2.65% , Grubhub Inc. /zigman2/quotes/210404212/composite GRUB +1.34% and Postmates have provided a deeper look into delivery apps’ business in 2020, and it is clear the pandemic has given the industry a big boost.

The four companies raked in roughly $5.5 billion in combined revenue from April through September, more than twice as much as their combined $2.5 billion in revenue during the same period last year.

Still unclear is how long the surge in deliveries will last, though, and what it means to the financial success — or lack thereof — of food-delivery apps in the long run. While the companies are seeing a surge in business, their costs remain too high to post any sustained profit. And the other stakeholders involved, such as the restaurants, drivers and cities, are looking to either cap the fees the companies are allowed to charge or to get their fair share of the companies’ revenues.

In the short term, many restaurants have little choice but to sign on with the apps. A Cowen & Co. survey of 2,500 consumers showed that in July, 52% said they would avoid restaurants and bars even after they fully reopen, and a recent rise in COVID-19 cases nationwide means many restaurants are again facing onsite-dining restrictions. According to restaurant-reservation platform OpenTable, the number of seated diners in the U.S. decreased an average of 52% the week of Nov. 19-23.

“Restaurants are heading into a terrifying winter with no lifelines other than delivery platforms,” MKM Partners analysts reported last week.

That is likely to benefit DoorDash, the U.S. industry leader with 50% market share, and the next biggest players: a combined Uber Eats and Postmates, then Grubhub, according to Edison Trends. DoorDash said in its prospectus that its 543 million total orders for the first nine months of the year tripled compared with 181 million orders in the year-ago period. 

See: DoorDash IPO: 5 things to know about the app-based food-delivery company

Uber Chief Executive Dara Khosrowshahi was so bullish on delivery that during the company’s second-quarter earnings call, he likened Uber Eats to “another Uber” that the company essentially “built in under three years.” That quarter, Uber Eats brought in more revenue than rides for the first time.

In the third quarter, Uber’s delivery business continued its growth: Uber Eats’ bookings rose 135% year over year, and its revenue surged 125% to $1.45 billion. Uber’s purchase of Postmates, which is expected to close in the fourth quarter of 2020, will bolster its delivery business.

For more: The pandemic turned Postmates’ IPO plans into a bidding war between Uber and Wall Street

Chicago-based Grubhub, which is being acquired by Just Eat Takeaway /zigman2/quotes/201653805/delayed NL:TKWY +0.42% , a European company, is also reporting increased business. The company said it had 30 million active diners in the third quarter, a 41% increase from the year-ago period, and its $493.9 million in revenue was 53% more than a year ago.

Beyond takeout, Uber and DoorDash are doubling down on delivery on multiple fronts, increasingly competing with Amazon Inc. /zigman2/quotes/210331248/composite AMZN -0.45% , Walmart Inc. /zigman2/quotes/207374728/composite WMT +1.02% (which has unveiled Walmart Plus, a subscription-delivery service) and other stores that deliver. Ahead of the holidays, DoorDash has rolled out a way for customers to send gifts to others.

The companies are also competing with Instacart, another gig company that delivers groceries. DoorDash recently introduced DashMart, its foray into convenience-store delivery. It has become the official on-demand delivery app of the NBA and brought on more grocery-store partners. Citing growing consumer demand, Uber in the second quarter launched delivery of groceries and goods from convenience stores and pharmacies.

It’s up in the air whether the demand and new offerings will translate into profit. The companies are all largely unprofitable: DoorDash turned a $23 million profit in its second quarter, but it still lost $149 million through the first nine months of this year, according to its prospectus.

“The profitability of the third-party delivery industry still remains a lingering question, with no perspectives offered on when this would be achieved,” Cowen analysts wrote in a research report.

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$ 192.00
+1.11 +0.58%
Volume: 1.68M
Jan. 22, 2021 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$60.99 billion
Rev. per Employee
N/A
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/zigman2/quotes/211348248/composite
US : U.S.: NYSE
$ 54.31
-1.48 -2.65%
Volume: 19.57M
Jan. 22, 2021 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$100.55 billion
Rev. per Employee
$525,911
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/zigman2/quotes/210404212/composite
US : U.S.: NYSE
$ 78.88
+1.04 +1.34%
Volume: 962,002
Jan. 22, 2021 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$7.32 billion
Rev. per Employee
$483,475
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/zigman2/quotes/201653805/delayed
NL : Netherlands: Euronext Amsterdam
96.32
+0.40 +0.42%
Volume: 142,809
Jan. 25, 2021 11:38a
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
€14.27 billion
Rev. per Employee
€86,944
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/zigman2/quotes/210331248/composite
US : U.S.: Nasdaq
$ 3,292.23
-14.76 -0.45%
Volume: 2.82M
Jan. 22, 2021 4:00p
P/E Ratio
96.41
Dividend Yield
N/A
Market Cap
$1651.88 billion
Rev. per Employee
$351,531
loading...
/zigman2/quotes/207374728/composite
US : U.S.: NYSE
$ 146.33
+1.48 +1.02%
Volume: 6.41M
Jan. 22, 2021 4:00p
P/E Ratio
21.12
Dividend Yield
1.48%
Market Cap
$414.01 billion
Rev. per Employee
$238,165
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