Food delivery service industry
The food delivery service industry encompasses the provision of ready-to-eat meals and groceries delivered directly to customers through various platforms, including mobile apps and websites. Initially dominated by pizza and Chinese restaurants, the sector experienced substantial growth during the COVID-19 pandemic as many traditional dine-in establishments adapted to survive amidst lockdowns. This shift enabled grocery stores to enhance their delivery options, responding to heightened consumer demand as people sought to minimize exposure by avoiding physical shopping.
The industry includes various business models, such as restaurant-to-consumer and platform-to-consumer services, with notable players like DoorDash, Grubhub, and Uber Eats leading the market. These platforms typically charge restaurants commission fees and delivery fees to customers, which help sustain profitability despite competitive pressures. The rise of smartphone technology and user-friendly apps has been critical in facilitating this growth, especially among younger demographics who prefer convenience over cooking. As the market continues to innovate, new services and adaptations are emerging to cater to diverse consumer preferences, suggesting ongoing expansion in the food delivery landscape.
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Food delivery service industry
The food delivery service industry includes ready-to-eat products from restaurants and grocery stores. Customers utilize mobile apps, websites, or telephones to order goods directly from the provider or through a third party. Although food delivery traditionally has been an option offered by pizza shops and Chinese restaurants, the global COVID-19 pandemic of 2020 and resulting shutdowns forced many formerly sit-down restaurants to provide delivery to stay afloat. Further, as many individuals concerned about becoming infected with the virus avoided stores, grocers improved their delivery services to meet consumer demand. Some businesses hired delivery drivers of their own, while many developed services using delivery apps such as Grubhub and DoorDash. The food delivery market in the United States more than doubled in the first eighteen months of the pandemic.
Background
The first meal delivery in recorded history is said to have taken place in Naples, Italy, in 1889. The customers, King Umberto and Queen Margherita, were visiting the area and were displeased with the food they were served. When the queen became ill, the royals cast about for food that suited her better. Raffaele Esposito created and delivered a mozzarella and basil-topped dish that pleased the royal palate. Esposito called his dish the Margherita pizza in the queen’s honor.
The earliest advertised delivery service in the US was quite limited and originated in Los Angeles in 1922. Kin Chu Café’s delivery service and restaurant business overall came to a near halt seven years later when the stock market crashed and the Great Depression left most people without the means to dine out.
In the years after World War II, the middle class in the US expanded. The restaurant industry in cities saw steep declines as Americans moved to suburbs. These sprawling communities offered few forms of entertainment, so many families stayed home to watch television. To survive, restaurants had to develop delivery services which unexpectedly increased restaurant sales by 50 percent. Many American veterans had developed a fondness for Italian food while serving abroad, and soon, Italian restaurants and pizza parlors had opened in communities across the US. The first known delivery service was offered by Casa D’Amore in Los Angeles, which delivered orders of more than $2.50 for free.
By the 1990s, some companies were offering consumers the chance to customize their orders and place them online. Pizza Hut, for example, began offering this service in 1994. A decade later, Grubhub offered customers the chance to order from restaurants that did not offer delivery.
Food delivery grew steadily in the 2010s and 2020s, increasing significantly each year. Much of this growth was due to young adults, who more often ordered prepared foods rather than cook. The rise of the gig economy, which saw workers taking on side jobs for extra income and avoiding full-time employment to work hours of their choosing, meant that delivery services had a ready workforce.
Overview
The development of easy-to-use apps and the widespread use of smartphones were crucial factors in the growth of the food delivery service industry. Some major established companies were among the first to expand to offer pickup and delivery options. Walmart rolled out online ordering for grocery pickup services in the 2010s. Customers could also choose from a limited selection of general merchandise. Amazon began testing AmazonFresh grocery delivery in major cities in the mid-2010s. Amazon’s service came with an annual subscription fee of $299. The company also offered some grocery delivery options in some markets using its already established one-hour delivery service, Prime Now.
Food delivery companies use several types of business models. These include restaurant to consumer, platform to consumer, and full-stack. Domino’s is a prime example of the restaurant to consumer model. The company developed its own online ordering system rather than partner with a delivery business such as DoorDash. The platform to consumer model involves third-party apps that alert a customer to nearby restaurants that partner with the service. The customer places an order that may be delivered by the restaurant’s own delivery system or a third-party courier service.
While meal delivery services rely on drivers, grocery services depend on shoppers. Instacart uses freelance shoppers to select goods on a customer’s list and deliver orders from hundreds of local grocery chains, convenience and pet stores, and specialty shops in its marketplace. The customer uses the Instacart app to select a nearby store, choose items, and place an order. Once the customer confirms and pays for the order, the app matches the customer with a shopper and delivery driver. The shopper can alert the customer if items are out of stock and suggest substitutions. The shopper uses an Instacart debit card, which is loaded with the cost of the order, and delivers the order to the customer. Users pay Instacart a delivery fee and are expected to tip the shopper who delivers the order.
Some businesses that already relied on drivers recognized early that food delivery was a good fit with the business model. Uber, the ride-sharing company, launched an online food ordering and delivery service in 2014. Customers can use the Uber Eats app or a web browser to peruse menus, read ratings and reviews, order, and pay for food from restaurants. In 2020, Uber acquired Postmates, a similar delivery service dating to 2011. DoorDash, which began service in 2013, operates in much the same way. These services use drivers who are self-employed.
The four major players in the US in the early 2020s were DoorDash, Postmates, Grubhub, and Uber Eats. By the mid-2020s, DoorDash dominated two-thirds of the market. Uber Eats and Postmates had 50 percent of the Los Angeles market and 41 percent of business in New York City. However, Uber Eats was the most popular food delivery service worldwide.
Food delivery services offer many benefits for business owners. While start-up costs can be significant, operating expenses are not exorbitant so long as business remains consistent or increases. The drivers are usually not employed by the businesses, so they are only paid for jobs they complete and do not get benefits. The businesses can be quite profitable, especially if they dominate a market. Delivery platforms make money through five primary areas. They charge restaurants commission fees that typically range from 15 to 30 percent of the price of the meal. Customers pay delivery fees of several dollars per order when they place an order. Users also pay customer service fees of up to 15 percent. Platforms earn money from in-app advertising. While the platforms do not make money off the tips given to drivers, the tips subsidize the operating costs of the platform. Some state and local governments established caps on commission fees during the pandemic, although these were not expected to remain in place permanently.
Customers typically stick with a platform they have used before, although in areas with a great deal of competition, customers are more likely to try other apps. Customers gravitate to those businesses with the fastest delivery times. This is especially true for lunch orders, when workers have a limited window for their meals and need prompt delivery.
An established delivery platform can exert tremendous control over the market. The company can give a higher profile to those restaurants and other suppliers that offer higher profit margins or provide better customer service. A company that dominates a market, for example, by buying out competitors, can raise fees at will, but the restaurants that depend on the app for business have no leverage to resist such changes.
Food delivery services have some disadvantages. Development and setup can be difficult. The app must be developed, restaurants and drivers must be recruited, and many complex elements of running the business must be carefully managed. Because the profit margin is small, decreases in business can force companies to cut staffing and other expenses. Food delivery is highly competitive, with hundreds of businesses operating in the US alone. The service itself competes with restaurants outside the network and customers’ interest in cooking for themselves rather than ordering.
Food delivery services continue to innovate as they seek greater market shares. During the global pandemic, DoorDash began offering customers the option of having items from stores close to the restaurants added to their delivery orders. This service, DoubleDash, partnered with major companies including 7-Eleven, Walgreens, and Wawa. In 2020, the company also established its own store, DashMart, to offer convenience and grocery items. Customers paid one delivery fee even if ordering from multiple businesses. While some services were expanding their services, new competitors were appealing to smaller segments of the market. For example, Slice offered customers a variety of pizzas, while HungryPanda appealed to customers hankering for Chinese food.
Supermarket News cited research indicating that food delivery services were expected to continue to grow. Marketplace gross order value (GOV) is the total value of goods sold through a customer-to-customer exchange site in a specific time frame. It is a way to measure the growth of a business that sells merchandise owned by others, such as supermarkets. GOV is the number of products sold divided by the sales price of each product during a period. DoorDash's GOV sales were $22.34 billion in 2020 and reached $66.8 billion by 2023.
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