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Boom Time for Food Delivery Platforms, But Still Not Profitable

Food Delivery Companies See a Spurt in Demand but Profits Still Elusive.
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Food delivery businesses are looking for survival and profitability in difficult times. The restaurant business has been one of the hardest hit due to the pandemic, and one of the ways adopted by those that have not shut down is to transition to takeaways and use the delivery services.

There is intense competition among the food delivery businesses to get a share of the market. For the restaurants, the answer is to get on to as many delivery platforms as possible to increase their orders. GrubHub, Doordash, Uber Eats, and Postmates are the primary delivery players in the US. In a latest development, Uber Eats of Uber Technologies is considering buying a stake in Grubhub.

Though the delivery players are seeing a rush of orders with people stuck at home, and even the orders sizes are large, there are still some hurdles. Almost all the delivery players have reduced their fees to help keep the restaurants in business. The business might be looking up for these players, but it has hardly turned in significant profits.

Bernstein analyst Sara Senatore writing about the profitability in food delivery says that the lockdown has forced a massive change in the behavioral pattern of consumers and the food suppliers both. "New users, more restaurants, increased order frequency, bigger ticket size, and favorable supply-side dynamics have all contributed to improving food delivery numbers," she writes.

Grubhub saw April sales increase 50%, while Uber Eats' sales expanded close to 90%. She thinks DoorDash grew faster still. She notes that the food-delivery companies have "sought to cement their market share with customer incentives, and that the pace of promotion and marketing spending appears to be increasing." Senatore adds that for restaurants, "the transition away from exclusive aggregator partnerships—already underway—accelerated in pursuit of as many off-premise customers as possible."

The spike in volume of orders has not translated into good profitable numbers for the food delivery aggregators.

Senatore believes that the waiver of fees has seen the various delivery companies lose out on the margins, though the sheer volume is showing an uptick in profitability.
The businesses need to improve the losses per order from the $2 range to about $1.20, which is an improvement but still not in the desirable range. Grubhub's financial forecasts for the June quarter points to slimmer margins, while Uber's outlook suggests continued improvement, she said.

Quarterly revenue from restaurant food deliveries rose by more than 50% to $819 million yearly, but yearly revenue growth at the unit decelerated significantly from the previous quarter, reports Reuters.

Uber Eats is generating good reviews among investors. Recently, while announcing the latest job cuts at Uber, the CEO Dara Khosrowshahi said Uber needed to concentrate on UberEats and the cab ferrying business.

Uber has withdrawn its 2020 financial guidance report saying that the Covid-19 coronavirus pandemic has made it difficult to predict how the market will play out for the company.

"Given the evolving nature of Covid-19 and the uncertainty it has caused for every industry in every part of the world, it is impossible to predict with precision the pandemic's cumulative impact on our future financial results," the company said in a statement.

In a call with analysts, Dara Khosrowshahi had assured investors that it had a cushion of nearly $4billion to see it through the crisis.

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