Food Delivery Businesses Booming Amid the Pandemic

By Adriaan Brits Thursday, December 24, 2020

Before the coronavirus outbreak occurred at the beginning of 2020, the food delivery industry was bracing itself for a reality check after years of shifting between huge profits and losses. However, the outbreak of the deadly coronavirus pandemic has proved to be a game-changer.

A Game-Changing Year for Food Delivery Businesses

Near the end of 2019 and the beginning of 2020, some of the food delivery giants, including Grubhub, were considering listing for sale after its position in the market weakened. On the other hand, companies such as DoorDash, Uber Eats, and Postmates held merger negotiations.

Suddenly, the demand for delivery services went through the roof. Uber’s ride-hailing business hit bottom, but it's UberEats unit thrived during the lockdown measures introduced in March and April this year.

"The stars have aligned. This is basically the perfect time for last-mile delivery companies to go public," said Asad Hussain, chief mobility analyst at PitchBook.

The pandemic has dealt a huge blow to the global economy, but some of the independent contractors from the so-called “gig economy” have been lucky to see demand surging far more compared to their rivals.

Ride-hailing companies including Lyft and Uber were battered after the outbreak in the spring as people were forced to stay home during nationwide lockdowns across the world. However, other sectors of the gig economy like food delivery have enjoyed a skyrocketing demand due to the lockdown circumstances.

One of these examples is food delivery business CHOMP, based in Eastern Iowa. The founder of the company, Adam Weeks, said their business substantially grew this year. Just like with other companies, CHOMP was hit hard after the outbreak, but after that, their business expanded to become bigger than it was prior to the pandemic.

“In March, we very quickly saw a huge increase in business,” Weeks noted.

“It was bittersweet then and it is now. It’s good to see our business grow and bring in revenue to restaurants, but it’s difficult to see other small businesses struggle.”

Jenna DeMarco, GrubHub’s spokesperson, said the surge in demand for app-based food delivery companies goes beyond local levels. At the end of the last quarter, GrubHub had 27.5 million customers on a national level, 35% more than it was at the same time last year, and up by 3.6 million since Q1.

“We sent 647,100 orders to restaurants on average each day, up 32 percent compared to the same time last year,” DeMarco added.

In the second quarter of 2020, GrubHub secured $2.3 billion in food sales to restaurants in the nation during a period between April to June, 59% more than in the second quarter last year.

DoorDash Secures $3.3 Billion in Funding

San Francisco-based on-demand food delivery services company DoorDash reportedly secured $3.37 billion in an initial public offering (IPO) above its marketed range. The company made its stock market debut on Wednesday, December 9.

DoorDash sold 33 million shares, priced at $102 apiece, after marketing in a range between $90 and $95. As a result, the company secured a fully diluted value of around $38 billion, including staff stock options and limited stock units.

This was one of the biggest tech IPOs in the US this year. DoorDash’s structure includes consumer-facing, web-based businesses that will go public this month. Additionally, in this group is the vacation rental company Airbnb, which is expected to announce its IPO price in December as well.

However, some senior Wall Street analysts believe that DoorDash’s market price is unrealistic.

"We think this proposed public equity offering holds no value, $0, beyond bailing out private investors before unsuspecting public investors realize the business is not viable in its current form," David Trainer, the CEO and founder of New Constructs, told Business Insider.

Including DoorDash, the US-listed companies have secured over $160 billion in initial public offerings in 2020, marking an all-time high, according to Bloomberg.

Summary

The demand for food delivery service providers has skyrocketed this year, following the outbreak of the coronavirus pandemic, which forced millions of people to stay at home for months. 

A number of gig-economy sectors have been battered by the pandemic, with a few exceptions like the food-delivery sector, which has enjoyed a consistently high demand since the outbreak.

About the Author


Headshot for author Adriaan Brits
As an analyst of global affairs, Adriaan has an MSC from Oxford, with diverse interests in the digital economy, entertainment, and business. He is a specialist trainer in Advanced Analytics & Media.

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