The food delivery industry is looking bloated. SoftBank’s backing of San Francisco start-up DoorDash is hurting listed rivals while Amazon’s investment in UK-based Deliveroo adds one more tech giant to the fight for market share. The lesson from the ride-hailing industry is that well-funded companies with money to burn will struggle to eliminate one another.
The wounds are already showing. Grubhub has lost more than a fifth of its market value so far this year. Ride-hailing company Uber reported slower revenue growth in food delivery operation UberEats, one of its whizziest businesses, before it listed in May. UberEats’ revenue rose by almost $1bn in 2018 — up 149 per cent on the previous year — to $1.5bn. But between the first and second half of the year, revenue dipped by almost $50m.
DoorDash is the temporary winner. It has ejected UberEats as the second-largest food delivery company in the US and tripled sales last year by expanding into towns and suburbs. It estimates its share of the market has more than doubled in the past 18 months to almost a third, about as large as that of Grubhub. Second Measure estimates UberEats has about a fifth of the total.
If Uber is right about the potential size of the food delivery market, there should be room for everyone. Overall, Uber put the global market for takeaways, drive-throughs and home delivery at just under $800bn in 2017. The three largest companies have less than 3 per cent of that. Add the money spent on groceries and restaurants and Euromonitor International says the total market is worth $2.8tn.
But the rapid increase in competition means delivery services are not only fighting over fickle diners but over drivers and restaurants. No company can afford to raise prices or cut back on offers. Uber Eats’ take rate (its share of gross bookings) was 10 per cent last year, down from 12 per cent the previous year. Without consolidation, take rates across the food delivery market will continue to fall.