By Noah Rothstein
Grubhub invested in delivery in the face of increasing competition back in 2015, hoping to increase order frequency, and maintaining dominance in a nascent market.
However, Grubhub lost money for the first time as a public company in 2018, and the company has not generated an annual net income since. In 2020, Grubhub agreed to combine with Dutch food delivery company Just Eat Takeaway.com in a deal set to close this month.
The competition thinks it can sustainably do what Grubhub could not: turn profits in the delivery business. They aren’t there yet. An analysis by Deutsche Bank found DoorDash pocketed an industry best of just 2.5% of a customer’s bill at the height of the pandemic.
DoorDash, now the U.S. food-delivery market leader by a wide margin, posted four consecutive quarters of profits based on adjusted Ebitda but has yet to post a year of net income. Uber Technologies’ food-delivery business, Uber Eats, is not profitable even based on adjusted Ebitda, though the company projected profitability on that measure by the end of the year.
To improve their economics, DoorDash and Uber are focused on leveraging their growing scale to create a version of delivery “super apps.” With their success in restaurant orders during the pandemic, they now hope to retain their customers by adding delivery of higher-margin verticals such as alcohol, convenience, and pharmacy products at locations like CVS and 7-Eleven.
DoorDash said in its first-quarter shareholder letter that non-restaurant orders grew 40% from the fourth quarter of last year. While the company now offers a marketing-only pricing tier for restaurants, most restaurants are opting for higher pricing that includes delivery because they need a full suite of services.
Grubhub said that nearly 85% of its orders are from independent and small chain restaurants as of the fourth quarter. Those restaurants need discovery services first and foremost, but many also need delivery, Grubhub said.
Food-delivery growth may have peaked during the pandemic, but the move towards auxiliary verticals to improve the unit economics of delivery has not been easy.
Drivers, in many instances, have been overloaded and overwhelmed. One DoorDash delivery driver reported that she was asked to hunt for 10 items at an unfamiliar pharmacy while a food order waited in the car. She ended up abandoning the pharmacy order, wasting time but not getting paid for it, and just delivering the food before it got too cold.
The benefit of combining delivery needs has yet to prove feasible. Having a driver pick up dinner and medicine from the pharmacy adds more time to the delivery and potentially could result in cold food. More delivery services have pivoted towards this, but consumers will ultimately determine if it is worth it.
