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Add extra fries: the growing appetite for food-delivery services

Restaurant and grocery delivery companies are the latest feeding frenzy for investors who are betting that appetites for food brought to homes and workplaces will keep growing beyond the end of the COVID-19 pandemic.

Investors looking to get a slice of the food delivery pie should keep their eyes peeled for trends around popularity and platform use, especially as the world starts to ease lockdown restrictions.

Food delivery giants UberEats, Grubhub, Just Eat Takeaway and Dominos are some of the top names but there is a plethora of platforms underneath fighting for a share of a growing market.

Total worldwide restaurant industry sales are projected to reach US$2.1 billion this year, with revenue expected to show an annual growth rate of 7.1% and project market volume of US$2.7 billion by 2024, according to Statista.

Closer to home, market researcher Roy Morgan says the number of Australians over the age of fourteen who use food delivery services has doubled to nearly 4 million since 2018, driven by the 25% of millennials and Generation Z who regularly order in.

Food delivery popularity during COVID-19

COVID-19 has driven the most recent boom in food delivery as restaurants, bars and cafes were shut down by lockdown regulations but remained open for takeaways.

As some people turned to baking their own bread and getting creative in the kitchen, others turned to food delivery services in order to get their ‘comfort food’ kicks. In fact since the pandemic started, UberEats reported the term ‘comfort food’ had broken through the top searches on the platform.

Menulog, Deliveroo and UberEats have all reported rapid growth in new restaurants on their Australian platforms, user numbers and delivery numbers since March.

In August UberEats announced that its delivery revenue grew 103% year on year, as a result of more people ordering from Uber Eats than ever before.

While Menulog recorded a 54% increase in orders on the platform from Melbourne customers, and Deliveroo chief executive Ed McManus said 1700 new restaurants joined the platform in the weeks following lockdown closures in Australia.

This includes higher-end restaurants and venues which prior to the pandemic typically had long lines of customers waiting outside their doors, such as Melbourne's Chin Chin.

The buzz around food delivery has spurred acquisitions overseas, with European platform Takeaway.com recently buying JustEat for $6.2 billion. Shortly afterwards the newly named JustEat Takeaway pounced on GrubHub for $10.6 billion, after a deal with UberEats fell through. Last year, low-brow delivery service DoorDash also bought high-brow delivery service Caviar.

Since their low in March, Grubhub shares have climbed 142%, which coincides with its revenues in July of $459 million, a 41% year on year increase from $325 million in the second quarter of 2019.

Not all foodies are sold

Despite the growth of the food delivery services industry during the global pandemic, not all Australian consumers and restaurants are sold.

Rather than relying on the food delivery platform giants, which charge high commissions for using their platforms, some restaurants are encouraging customers to pick up orders themselves or offering cook-at-home meals.

In an industry where net profit margins often fall in the low single digits, this commission structure works for highly-profitable restaurants for which delivery represents additional incremental sales and profiles. But for moderately profitable restaurants, low order volumes can be detrimental to the bottom line.

Some industry experts believe once the pandemic has passed and restaurants are allowed to operate as usual, hype built around food delivery services may die down or return to past performance levels.

The innovative future of food delivery

It’s easy to forget the food delivery sector is relatively young: Deliveroo launched just six years ago, Glovo four years ago, and UberEats entered the market in 2016.

But all are working on new products to further smooth the food ordering process.

Restaurants such as Dominos have already started planning for the future, allowing customers to order pizza through social media platforms such as Twitter by simply tweeting a pizza emoji. The pizza giant has also launched an app which allows customers to order pizza through their smart watches.

Pizza Hut partnered with Accenture and Visa to develop an in-car food ordering system, allowing drivers to buy pizzas while on the road. The secure medium lets customers order food by voice, eliminating the need to check the screen.

Automotive manufacturers Ford, Toyota and GM have successfully trialled autonomous vehicles for food delivery services across the US, in what promises to be a flood of driverless vehicles being employed by online food platforms.

In April 2019, Google’s parent company Alphabet was approved to trial drone delivery in Canberra to over 100 eligible homes. UberEats were also given the green light to trial drone delivery in San Diego this year, after a successful pilot at San Diego State University in partnership with McDonalds.

The growth of the online food delivery industry has also given way to a virtual restaurant model known as ‘dark kitchens’ or ‘ghost kitchens’ that exist only to deliver food. Some established breakfast or lunchtime venues can rent out their unused kitchen in the evening, and new ventures can trial their wares without major overheads. Deliveroo has launched its own dark kitchen precincts, called ‘Deliveroo Editions’, which are easily accessible by their delivery riders.

Room to grow

There’s still a whole lot of room for growth in the food delivery service industry including plenty of space for new contenders and appetite for fresh offerings, but that will be matched by battles for market share as well as other hurdles along the way.

 

Josh Gilbert is an Australian analyst at eToro. This article is general information and does not consider the circumstances of any investor.

 


 

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