ALEXANDRIA, Va.—The online food delivery sector has emerged as one of the few industries to flourish during the pandemic, as restaurants remain closed and people get tired of cooking their own meals. But will the coronavirus-era boost in orders be enough for these companies to finally turn a profit?
Sales in the delivery industry are soaring, according to a Bloomberg report. Last week, when Uber Technologies reported its second-quarter earnings, it recorded a 103% jump in delivery revenue from the previous year. Meanwhile, Grubhub’s revenue ticked up more than 40% and its active diners for the quarter grew 35%, while Germany’s Delivery Hero raised its 2020 sales forecast after orders nearly doubled during the pandemic.
Despite increased sales, Uber and Grubhub lost $837 million and $45.4 million for the quarter, respectively, and analysts predict Delivery Hero will lose more than $800 million this year.
Increased competition has changed the world of global delivery, triggered waves of consolidation and forced the hand of traditional marketplace companies like Just Eat Takeaway.com and its soon-to-be-acquired Grubhub. Originally, Just Eat Takeaway simply matched hungry customers to restaurants and let the restaurants deliver the food, a model that allowed it to be more profitable than its competitors. But recently, it has adopted direct delivery, despite the high costs.
The pandemic itself has created other headaches, forcing companies to provide drivers with personal protective equipment. And the economic slowdown will lead to more restaurants closing for good, paring back the number of potential clients. Some U.S. cities have also capped the commission fees, which can run up to 30% of per order, that services charge to restaurants.
Still, as COVID-19 fears linger, delivery is an increasingly irresistible option. Part of the platforms’ marketing costs go toward convincing customers and restaurants to change their behavior, something the pandemic has fast-tracked. An industry rule of thumb says that if a customer orders three times within eight months, they’re locked in as a food-delivery customer.
But will that delivery boom last when fears of COVID has subsided? According to RestaurantBusinessOnline.com, delivery is not cheap, and the country’s economic outlook is stormy. Gross domestic product plunged 33% in the second quarter, and unemployment remains in the double digits.
“Yes, delivery is expensive ... and if we do head into an economic downturn and money is a little bit tighter, I do think that will impact it,” said Eli Portnoy, CEO of consumer research firm Sense360. “But the flipside of that is that over the last several months, consumers have gotten really used to the idea of convenience … and so I think we’re still gonna see consumers use it at a much higher level than they were before.”
Restaurants, too, believe consumers’ strong demand for delivery will continue. Bloomin’ Brands, parent company of Outback Steakhouse and Carrabba’s Italian Grill, saw off-premise business triple during the pandemic. Even now, with 92% of dining rooms open, off-premise still makes up 45% of its sales, executives said.
Another variable that could impact delivery is consumers’ willingness to return to dining rooms once they fully reopen. More people dining out could ostensibly mean fewer people ordering delivery. “As consumers become more willing and able to be out in public spaces, we’ll start to see where the use of delivery may change, either more or less, based on consumer sentiment,” said Sam Acuna, managing partner with Gallup, the analytics and advisory company.
NACS has compiled resources to help the convenience retail community navigate the COVID-19 crisis. For news updates and guidance, visit our coronavirus resources page.