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The closure of restaurants and bars at the onset of the COVID-19 lockdowns last year emptied cities of commuters and consumers. But just because people couldn’t dine in these establishments didn’t mean people couldn’t order take out from them. Enter the food delivery industry, which raked in roughly $5.5 billion in combined revenue from Apr. through Sep. 2020 — more than twice as much as their combined $2.5 billion in revenue during the same period in 2019.
Getting more specific, as reported by The Economist, the company with the largest chunk of the U.S.’ food-delivery market Doordash rose three-fold in the first quarter of 2021 compared with a year prior. Its main competitor UberEats enjoyed similar speedy growth, in part thanks to its multiple acquisitions including that of Postmates. The companies directly attributed their growth to the pandemic, which increased the number of users who have ordered delivered meals for the first time. According to NPD Group data, 47% of people in the U.S. ordered from one of the major delivery players by Mar. 2021, up from 38% from the year prior. In 2020, delivery orders overall increased 137% from 2019. Because of this expansion of the market, food delivery companies reportedly said they are not concerned about the return of in-restaurant dining.
But as noted by the publications, investors are apparently worried about whether the food delivery companies will ever turn a profit. For example, DoorDash reportedly lost $442 million on $3.6 billion of sales in the year to Mar. 31st. And a new academic paper from the U.K. suggests that the food delivery boom is about to bust. Academics estimate that in an imaginary alternate scenario where the pandemic didn’t happen, they reckon that user and sales growth would probably have decelerated in 2020 as consumers’ appetite for take-away meals peaked.
The researchers found that most of the delivery firms’ growth came from people who would normally have eaten out. So although sales skyrocketed last year, they would have gone up by a less spectacular 40% if restaurants had remained open. Oblander even noted that when stay-at-home orders were lifted in the U.S, last year, most of the pandemic-induced growth immediately disappeared.
And yet, the food-delivery companies are still pouring money to attract new customers, even amid delivery fees caps set by state governments throughout the country. Food service delivery fees typically average 15% to 30% and have been a major point of contention for both customers and restaurants using the service. A New York Times story in Feb. 2020 found that foodservice delivery markups can cost up to 91% more than if you ordered a meal directly from a restaurant. California recently passed a bill requiring food delivery apps to provide an itemized breakdown of costs to both customers and restaurants for each transaction. This means that it must list food price, fees, tips, and commissions separately. Though the original bill proposed putting a permanent cap on delivery fees, the version that passed prohibits companies like DoorDash, UberEats, Postmates, and GrubHub from charging higher prices for food than what the restaurant charges its customers.
Meanwhile, according to data from OpenTable cited by The Economist, in-restaurant dining is nearing its pre-pandemic peak.