An online food delivery (OFD) platform is a website or mobile app that allows users to place food orders, make payments, and track delivery orders in real time. The earliest and most popular model in the industry is the aggregator model, in which the platform hosts menus from multiple restaurants for users to order from. Newer players in the industry have focused on niche segments such as prepared meals and meal kits. Already a growing segment, online food delivery gained immense traction recently due to restaurant closures and social distancing practices to mitigate the spread of the Covid-19 pandemic.
Online food delivery experienced significant growth due to restrictions on dine-in restaurants:
Customer transactions at restaurants declined sharply during the height of the pandemic, -37% YoY in April 2020 amid lockdown restrictions and dine-in closure mandates, but which subsequently improved to 32% YoY in March 2021. Meanwhile, digital orders through third-party food delivery apps grew by 207% YoY for the year ended March 2021. Consequently, many online food delivery platforms reported accelerated growth in revenue in FY2020:
Marley Spoon – +126% YoY in the US
HelloFresh – +107% YoY in the US
Delivery Hero – revenue growth of 95% YoY globally
DoorDash – revenue growth of 226% YoY globally
Deliveroo – revenue growth of 57.5% globally
Major online food delivery platforms took initiative to help restaurants:
DoorDash and UberEats waived fees charged to restaurants at the onset of the pandemic. DoorDash announced a five-year USD 200 million Main Street Strong Pledge in November 2020 to continue supporting restaurants and drivers; offered a further USD 10 million in cold weather grants to struggling restaurants in October 2020; partnered with the California Restaurant Association (CRA) in August 2021, to support small businesses in the area.
Uber Eats launched an in-app donation button for restaurants in April 2020 and proposed an additional USD 2 million to the Restaurant Employee Relief Fund; launched the Eat Local program in February 2021, committing USD 20 million to continue supporting restaurant owners and operators.
GrubHub collaborated with the Restaurant Strong Fund in November 2020 to offer independent restaurants grants to help with outdoor dining during the winter. They offered independent restaurants 1) USD 2 million in grants in May 2021, to help reopen restaurants under Covid-19 requirements and 2) USD 4 million in grants in October 2021, to support restaurants that were operational during the pandemic.
State and local governments capped online food delivery commissions:
As a relief measure for restaurants, several US cities, such as Washington D.C., New York, San Francisco, and Jersey City, implemented a temporary cap on commissions charged by online food delivery platforms. Rate caps ranged from 20% (New Jersey) to 10% (Oregon), with most cities setting rate caps at 15% (New York, San Francisco). While these commission caps have since been lifted in some states and cities (such as Washington, Denver, and Chicago), following a lifting of restrictions on indoor dining, a few cities (New York, San Francisco, Minneapolis) have passed legislation to make these commission caps permanent.
The aggregator (general) segment is highly populated compared to the other niche segments, mostly due to its large potential market size. The segment is the popular pick for incumbents, which are mostly established tech players with an existing e-commerce presence. More established/mature disruptors are also largely present in the aggregator (general) segment, as well as in meal kit delivery.
The larger disruptors in the general aggregator segment - including DoorDash, Deliveroo, and Delivery Hero – are in growth stage, and have regularly raised capital from the equity and equity-linked issuance markets over the last two years. The general aggregator segment also has some newer startups in the pre-seed/seed stage using alternative business models (e.g., commission-free) or operating in niche sectors (e.g. high-end restaurants) to try to compete with larger incumbents and disruptors.
The majority of startups in the seed or pre-seed stages tend to be clustered in the meal kit delivery and prepared meal delivery segments, with these two segments also seeing more early stage start-ups.
As of July 2021, Doordash was the most dominant player in the space with a 57% share of the US online food delivery aggregator market, ahead of global leader UberEats (23%) and legacy US market leader Grubhub (16%). The company, which hadn’t reached 50-state penetration until 2019, took over as market leader from Grubhub that year, and has since further eroded Grubhub’s market share (from 40% in August 2018). However, market share is fragmented across US major cities. DoorDash, for example, is dominant in its home market San Francisco, as well as in Houston and Washington, while UberEats leads in Miami and gained significant market share in Los Angeles through its acquisition of disruptor Postmates in 2020. New York is pretty evenly split among the three players, in terms of share of sales.
In the more niche meal kit segment, German company HelloFresh is the largest player in the US, with an estimated market share of almost 60% as at September 2020. The company’s market share growth in the US has mainly come at the expense of rival Blue Apron, whose US market share has declined significantly (from over 20% in January 2019 to roughly 9% by July 2020), amid diminishing customer loyalty.
Subasket is the highest funded disruptor in the prepared meals segment. The company, which began operations as a meal kit provider, expanded into prepared meals in August 2020 followed by the launch of its full-service food delivery model in January 2021.
Ordermark (more than USD 150 million) and Deliverect (~USD 87 million) are the highest funded disruptors. Both companies operate online ordering platforms for restaurants and have surpassed the USD 1 billion order value mark.
DoorDash operates an online food delivery platform, connecting restaurants with customers, across the US, Australia, Canada and Japan. As of July 2021, the company was the market leader in the US among OFD players, with an estimated 57% market share. Its US operations span over 4,000 cities, with more than 400,000 restaurant partners servicing over 18 million customers, as of April 2021. DoorDash is one of the first startups (along with Postmates) to offer a delivery facility through an aggregator platform, which competitor GrubHub only started in 2015. The company has also expanded into grocery and convenience store delivery over the last 2-3 years, with a hybrid business model consisting of a mix of supermarket partnerships and its own network of dark stores.
In contrast to competitor UberEats - which has expanded aggressively through a series of acquisitions - Doordash has predominantly grown organically, with the support of a few strategic acquisitions. The company’s plans to acquire Finnish online food delivery platform Wolt in November 2021 for ~EUR 7 billion (~USD 8 billion) could be its largest to date. The acquisition is expected to support DoorDash’s global expansion strategy, which is to enter the European market. Previously, the company acquired Chowbotics, the developer of a stationary salad-making robot, “Sally,” in February 2021, with the acquisition expected to expand the menu offerings of partnered restaurants and provide greater “access to fresh and safe meals." In August 2019, the company bought rival online food delivery platform Caviar for USD 410 million. The acquisition strengthened Doordash’s market share in Pennsylvania and Oregon, where Caviar had more than 10% market share.
Prior to the pandemic, DoorDash charged restaurants a commission of up to 30% of order value, and a service or delivery fee from customers, depending on the type of service (takeout or delivery). However, during the height of the Covid-19 pandemic, third-party delivery platforms were criticized for their heavy commission fees, with several cities across the US imposing a temporary 15% delivery commission cap to support restaurants, given their higher dependency on third party food delivery providers. In response, DoorDash introduced a new three tiered commission structure for US restaurants (with less than 75 locations) in April 2021, ranging between 15%-30% delivery commission (+6% pickup commission), with limits on 1) delivery area; 2) app visibility; and 3) access to high-value DashPass customers, for the lower commission range. Under the new commission structure, consumers bear a higher share of delivery costs. Consumers who subscribe (USD 9.99 per month) to DashPass, however, are eligible for zero delivery fees on orders over USD 12.00. The company classifies DashPass subscribers as “high-value”, likely due to their frequency of ordering food delivery. DoorDash, along with competitors Grubhub and UberEats, filed a lawsuit against New York City in September 2021, to block new legislation that caps delivery commissions charged by third-party apps at 15%. The company previously teamed up with Grubhub to sue the city of San Francisco in July 2021 following the enactment of a permanent commission cap.
DoorDash also operates other business models such as 1) DoorDash Self-Delivery: a platform that allows restaurants and food businesses to have a listing on the DoorDash platform, while using their own delivery people and setting their own delivery zone and fees (lower commission vs. restaurants that use DoorDash’s drivers); and 2) DoorDash Drive (Drive): a white-label product, which allows participating restaurants to offer delivery through their own apps or websites (instead of the DoorDash app) with delivery being carried out by DoorDash drivers. Drive restaurant partners including Chipotle, Denny’s, Wingstop and Little Caesars.
For FY2020, DoorDash reported a surge in revenue, up 226% YoY to USD 2.9 billion, supported by a strong 210% YoY increase in orders to 816 million, which resulted in a 207% rise in Marketplace GOV to USD 24.7 billion. The company attributed the sharp growth in order volumes to favorable conditions for food delivery (lockdown measures and in-store dining restrictions) and a rise in orders done through its Drive platform. Despite the strong topline performance, DoorDash failed to report a profit, recording a loss per share of USD 7.39, though 52% lower than the previous year’s loss. For FY2021, the company expects marketplace GOV to range between USD 39-40.5 billion, implying a 58%–64% YoY growth. Additionally, the company estimates adjusted EBITDA guidance to range between USD 150-350 million, implying YoY growth of up to 85%.
Meal Kit Delivery Platform:
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