As key players look to expand market share, the food delivery economy continues to see consolidation as consumer appetite for these services holds steady. Most recently, DoorDash announced its intent to acquire Finland-based delivery platform Wolt. With Wolt operating across 23 European countries, the $8.1B transaction is an acceleration of the company’s international expansion efforts. “We believe that DoorDash and Wolt are very much aligned in terms of business model, operating philosophy and strategic priorities, and the acquisition will increase competition, especially for other global food delivery companies,” says Doug Anmuth, Head of U.S. Internet Equity Research. “We believe DoorDash will be able to invest more in Wolt’s markets to drive greater growth, and Wolt may be able to help improve productivity in Dash’s existing international markets.”

In summer 2020, the industry experienced two major acquisition announcements: Uber’s acquisition of Postmates for approximately $2.65B in an all-stock transaction. Europe’s leading food delivery platform, Just Eat, based in Amsterdam, also acquired Chicago-based Grubhub in a lock-up that expanded their footprint to the U.S.

More options on the menu

Many of today’s food delivery service companies did not exist a decade ago. The early 2000’s saw the beginning of an industry that would evolve to become engrained in our daily lives, with initial market entrants – Seamless, Just Eat, Grubhub and others – starting out as food aggregators that allowed consumers to scan menus and place orders through a restaurant’s website. Delivery logistics were coordinated by each restaurant.

The arrival of smartphones ushered in new players across the globe at the beginning of the next decade: Deliveroo, Delivery Hero, DoorDash, Caviar, Uber Eats,, iFood, Swiggy, Meituan Dianping, Rappi and more. With the rise of smartphone penetration and customer appetite for ordering and delivering within the same platform, business models evolved to offer an end-to-end experience. “Initially, there were several players and very quickly, every country saw the emergence of one or two heroes that captured market share,” says Marcus Diebel, European Media & Internet Equity Research Analyst.

Estimated U.S. market share of food delivery operators

Pie chart depicting the estimated U.S. market share of food delivery operators, with DoorDash dominating the scene.

The U.S. is one of the most competitive markets globally, with four main players competing for market share: DoorDash, Grubhub, Uber Eats and Postmates. “There is competition throughout every part of the process,” says Anmuth. “Customers have to choose between promotions from different operators. While some restaurants prefer exclusivity with one platform, others choose to be present across several. Drivers operate for multiple companies. When you look at these pieces together, fewer market players would create a more rational space as the focus shifts to profitability.” In a low-margin industry, M&A has been one strategy to attain market share gains.

Anmuth expects the Uber-Postmates acquisition to generate synergies for Uber Eats. For example, consolidation across complementary locations (e.g., Los Angeles, Orange County, Phoenix and San Diego), and an expanded restaurant line-up that includes local favorites such as L.A.’s sushi standout, Sugarfish. Additionally, Postmates’ batching and chaining capabilities should help drive further delivery enhancements for Uber Eats. “We believe Uber should be able to leverage greater scale and operating efficiencies to gain market share in online food delivery, as well as in adjacent opportunities such as grocery and essentials delivery, accelerating Eats’ path to profitability,” says Anmuth.

Just eat

Pie chart depicting that the majority of Just Eat’s 2021 estimated revenues came from Canada and the U.K.

In May 2020, reports surfaced that Uber was in talks to acquire Grubhub, but it was later announced that Just Eat would acquire Grubhub through an all-stock merger valuing Grubhub at $7.3B. The lock-up would deliver expanded presence in four important locations: U.K., Germany, the Netherlands and the U.S. “We are surprised by this move given the competitive environment in the U.S. and limited immediate revenue and cost synergies,” says Diebel. “In our view, the U.S. market needs first of all further consolidation by reducing the number of food delivery operators from four to two.”

Key ingredients: customer loyalty, technology and volume

“The increasing penetration of e-Commerce has accelerated the rise of the online food delivery industry,” says Anmuth. “The more restaurants that join the marketplace, the more of a network effect it creates and that has pulled adoption forward the past four years.” This dynamic became more pronounced during COVID-19.

This network effect has drawn in most publicly-listed restaurant chains with globally recognized brands. This includes Starbucks, where orders tend to be smaller and delivery fees comprise a large portion of the total cost. Food delivery operators are generally seen as providing incremental sales to restaurants versus in-store dining or drive-through service. “Since this incremental transaction is well above break-even, most restaurants are willing to accept a lower margin selling through delivery platforms, as opposed to having customers visit the restaurant themselves,” says John Ivankoe, Restaurant Equity Research Analyst.

U.S. monthly active users of food delivery players

Line chart depicting that DoorDash had the largest number of monthly active users in the U.S. as of February 2020.

The weak economics of the industry continues to be a challenge in reaching profitability. “When you look at the food delivery space, it has seen a lot of top line momentum, but the bottom line has always been in question,” says Diebel. Attracting customers, who aren’t typically loyal to any one operator, is a particularly expensive aspect of the business model. High marketing spend on customer incentives, promotions and vouchers for delivery fees make it difficult for companies to expand margins.

In some markets, consolidation can help to effectively “switch off” marketing spend. For example, in 2019 Dutch online food operator acquired Berlin-based competitor Delivery Hero’s German assets. The deal doubled the scale of’s existing operations, reaffirming its top position in the region. In addition to reduced operating expenses, the deal significantly decreased marketing spend.

Diebel notes that volume is what makes the economics of consolidation come together, and achieving higher volume is largely driven by better technology. Food delivery players tend to consider themselves as technology companies rather than logistics companies, but Diebel argues the two are interconnected. “Sophisticated technology will help enable them to control the entire chain, and that’s why this industry has staying power,” he says. For example, enabling a driver to arrive the moment a pizza leaves the oven speeds up the process and means hotter food for the customer.

The increasing penetration of e-Commerce has accelerated the rise of the online food delivery industry. The more restaurants that join the marketplace, the more of a network effect it creates and that has pulled adoption forward the past four years.

He notes that “daily delivery”—where it’s cheaper to order than cook—could become the norm, but it will depend on whether online food operators can slash delivery fees. “This would not only be good for acquiring market share but would also improve affordability for customers. If affordability goes up, then volume will likely go up, and this is the path to profitability,” says Diebel. “This is a winner take most industry, not because you have more restaurants on the platform, but because you have the right restaurants. If operators can create an established network with efficient delivery logistics, this will be the key growth engine for the industry.”

Uber is in a unique position compared to its peers, with the scale advantages of its Rides and Eats businesses that are built on the same tech stack. Uber Eats grossed ~$14B of bookings in 2019, only four years after launching the Uber Eats app. Uber restructured its app to combine both businesses, enabling customers to view options and interact with them in one environment. It also launched a suite of subscription products to build customer loyalty. “We believe the ability for Rides and Eats to work together to acquire and retain customers will prove to be a competitive advantage,” says Anmuth. “We expect that Uber’s push to bring all services within one app will help cross-promote Eats and other services to Rides’ customers, and vice-versa, amplifying the overall platform effect.”

When you look at the food delivery space overall, it has seen a lot of top line momentum, but the bottom line has always been in question.

COVID-19 increases appetite for food delivery

According to Diebel, penetration and frequency are the biggest growth drivers in the industry. He notes online penetration is between 5-30% in most markets. “While some limitations exist, I keep a strong view that the overall growth opportunity is significant,” he adds.

Meal delivery – monthly sales

Line chart depicting that DoorDash had the highest volume of monthly sales in the U.S. in May 2020.

However, this growth has negatively impacted many restaurants. “Initially, takeout was viewed as a nice add-on, but take rates and other fees have caused many establishments to suffer,” says Diebel. While the right location used to be a competitive advantage, it’s now about the reviews. “Restaurants are less competitive with each other on these platforms,” says Diebel. “A restaurant is either the most affordable or has the best quality food. Most places are somewhere in-between and this wide middle range suffers.”

At first, many restaurant chains maintained exclusivity agreements with one food delivery operator in exchange for lower fees. Restaurants had already started moving away from exclusivity in favor of multiple partnerships to attract more customers and COVID-19 accelerated the shift. “The trend is moving one way: toward less exclusivity,” says Ivankoe. “Restaurants have seen their delivery partners essentially compete against them by adding competitor brands, often featuring the ‘newest partner’ most prominently within the app.”

The impact on restaurants has been magnified by COVID-19, with an expanded customer base of people trying food delivery platforms for the first time as a result of lockdowns. Without dine-in service, new restaurants signed up to the platforms to help generate revenue amidst strong delivery demand. “The food delivery category is seeing a secular shift that we believe will prove sustainable post crisis,” says Anmuth.

Driving toward the future

Food delivery platforms are eyeing other last mile opportunities as their next growth driver, such as online groceries and essential goods, as a way to build upon their established network. For example, Uber’s purchase of Cornershop, a grocery delivery service that serves the Latin America market and is based in Santiago, Chile. “With the acquisition of Cornershop, Uber has further diversified its core offerings, and we see online grocery delivery as a natural extension of the Eats business that can leverage the existing network of customers and drivers,” says Anmuth.

Business-to-business could be another strong growth area, and Diebel envisions a future where offices remove cafeterias entirely and offer employees a discount on every online food order. This strategy could be more cost efficient for both companies and employees, who would also benefit from the number of available choices. “We are also seeing private equity moving into this space and standing up restaurants solely to optimize food for delivery,” says Diebel. “Offering different types of cuisine, from the same establishment, will be powerful because different family members can select their preference and it arrives in one order.”

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