Food-Delivery Apps Face Headwinds

Amid decades-high inflation, will consumers consider food delivery a luxury or a necessity?

July 22, 2022

Uber Eats bag on a bike

ALEXANDRIA, Va.—Food-delivery apps are facing slow growth, decades-high inflation and a potential economic slowdown, reports the Wall Street Journal.

Apps, such as DoorDash, Uber Eats and Grubhub, were used heavily by consumers during the pandemic, when eateries were closed to inside patrons. But now that the pandemic has waned and rising prices weigh on the American consumer, food-delivery apps are offering new ads and deals to attract customers, updating their apps to encourage more spending and deliver more than food to keep and attract new customers.

More than 80% of the U.S. food-delivery market is run by DoorDash and Uber. Both apps increased their delivery revenue in the first quarter and are expected to expand during the full year. However, both apps’ growth rate has slowed down tremendously.

Total orders for all food-delivery apps grew 11% year over year from April to June 2022, which was the slowest quarterly expansion since the pandemic began. In the same three-month time period, orders were up 48%, but they were up 88% during the same time in 2020. Delivery spending also rose at its slowest quarterly pace in two years in the three months through June.

Grubhub, once the market leader among food-delivery apps, is expecting negative margins on its earnings after expenses this year. Grubhub’s parent company Just Eat Takeaway said that orders were down in the first quarter ended in March compared with a year earlier. Just Eat is considering a full or partial sale of the app just one year after acquiring it.

However, both DoorDash and Uber Eats say that the consumer habit of ordering food with the touch of a button is here to stay, and the companies say the habit is still growing and inflation didn’t impact consumer demand significantly during the first quarter, which ended in March. When DoorDash released its first quarter results, the company said, it expected the total value of orders placed on its app to grow about 20% this year, which would beat last year’s record spending.

“Our strategy and operational efficiency has allowed DoorDash to outperform across market environments,” the company said.

Second quarter results are expected to be announced by both companies next month.

Luxury or Necessity

The question is whether consumers will consider food delivery a luxury or a necessity if an economic downtown occurs.

“There is more economic pain incoming for consumers,” Matthew Goodman, a senior analyst at the data analytics firm M Science, told the Journal. “You have to wonder if more price-sensitive consumers are going to be willing to pay for that convenience as often as they have been.”

Uber and DoorDash are focusing more on delivering groceries and alcohol to increase revenue, and the Journal reports that these items help limit labor costs because more orders can be combined together. DoorDash has partnered with Albertsons for 30-minute delivery—a sector of the grocery delivery business dominated by Instacart. Uber says it has added 24,000 grocery stores to Uber Eats around the world, including Albertsons, Carrefour, Costco and Woolworths, and the company announced yesterday it is rolling out new features to make shopping within the app “more convenient, intuitive and reliable than ever before.”

Food-delivery apps are also offering deals to gain new subscribers. Uber Eats subscribers can now receive a 10% discount on each Eats order, which was twice as much as before. Grubhub partnered with Amazon to offer Prime Members free Grubhub+ for one year and offered New Yorkers free lunch. DoorDash has an agreement with Chase that allows cardholders a free year of DashPass. DoorDash also launched a student plan that is half the price of a regular subscription.

In addition, Uber and DoorDash now offer food shipping from popular restaurants across the U.S. on orders such as Nashville hot chicken, gourmet ice cream and Asian dumplings.

Lloyd Walmsley, a UBS analyst covering the sector, told the Journal that although the food-delivery sector was stronger than expected last year, that pattern could be broken by the state of the economy.

“There’s definitely growing concern that this is a very tough place,” he said. “There’s a lot of reasons to be worried.”

According to the NACS “Last Mile Fulfillment in Convenience Retail” report, 61% of retailers are satisfied with their third-party delivery partners. Concerns include high fees, little access to consumer data, difficulties delivering age-restricted products and service and operational issues.

Here’s what c-stores are doing to make delivery work for their businesses.