The popularity of food delivery companies is growing, and the market is crowded with new delivery businesses. Therefore, it can be difficult for investors to determine which food delivery stocks are worth investing in and which ones should be avoided. This article is a detailed guide to investing in the food delivery industry.
What Is the Food Delivery Industry?
Retail food delivery is a service that a store, restaurant, or food ordering company provides. The customer can order from these establishments online through their website, mobile app, or food delivery company. The deliveries can include dessert dishes, grocery items, entrees, sides, etc.
The food comes in boxes or bags, and the delivery person usually uses a car to get to their destination. However, delivery people may also use motorized scooters or a bike in bigger cities. Lately, some companies have even used autonomous vehicles to deliver food.
Online or in-person, the customer can pay for their order with a flat delivery fee usually charged with purchasing the food. Aside from the flat rate, tips are also common. However, due to Covid-19, some companies introduced contactless delivery.
The Food delivery industry size and growth
In 2017, the global market for food delivery had reached more than $150 billion. This growth is due to the increasing number of consumers wanting to order food online.
Furthermore, the rise of tech-friendly apps and the increasing number of consumers wanting to order food delivery have unlocked the category’s potential. In addition, the pandemic has boosted the food delivery field due to the physical-distancing requirements that affected the restaurant industry.
The economic structure of the food-delivery industry is still evolving. Its various components, such as brand, real estate, and operating efficiency, will still determine the industry’s success as it develops. In addition, regulatory constraints, such as the possibility of changes in how drivers receive compensation, will affect the industry’s profitability.
According to Christopher Payne, the chief operating officer of DoorDash, the company’s business is very low-margin and scale-driven. Despite the challenges, there are still plenty of opportunities in the tech space.
Two recent IPOs, which happened in December 2020 (DoorDash) and March 2021 (Deliveroo), highlighted the uncertainties and excitement still present in the tech industry.
As the pandemic continues to affect the world, new challenges and opportunities emerge for players in the tech space. In parallel, the emergence of new fast-moving platforms that offer similar services has raised new competition.
Sizing the Market
The most mature delivery markets, including Australia, Canada, the UK, and the US, grew fast in 2018 and 2019. The exponential growth these markets experienced continued in 2020 and 2021 to reach the point where they are now four to seven times bigger than in 2018.
The rise in popularity was largely due to the increasing number of Gen Zers and millennials who prefer the convenience of prepared meals. Furthermore, during the pandemic, the food-delivery market spiked in the US and Europe because of severe lockdowns.
The Evolution of Food Delivery Services
When Pizza Hut and Dominos launched their online food ordering services, there was no online ordering trend at that time. The concept of online food ordering was still relatively new. Since then, many changes have happened in the way we order food.
We can divide the evolution of food delivery service into four generations:
1. First Generation
Before online food ordering, people had to call a restaurant, place their order via phone, and then the restaurant would deliver the food to their intended recipient.
Aside from the food quality, the restaurant also considered the delivery service aspect. As the market has gotten more sophisticated, the number of people calling the restaurant has decreased, and other forms of food delivery placements emerged.
2. Second Generation
The rapid growth of the internet enabled people to connect and communicate. This was also beneficial for businesses as they could advertise themselves online. The second generation was not really a food delivery platform but more of an aggregator.
The customers could see the menu and restaurant location online but would order directly from a restaurant. The main factors that led to the rise of white label restaurant software are the ease of use and the ability to accommodate various user needs.
3. Third Generation
A restaurant doesn’t need to create a white label restaurant software to perform its operations. Instead, it can list its establishment on the platform. The online ordering platform is responsible for receiving and delivering the requested food to the users.
In addition, through social media, restaurants can connect with their intended audience and extend the nearness of their establishments.
4. Fourth Generation
Massive changes are happening in the restaurant industry and the online food ordering software industry. The fourth-generation delivery service belongs to Ghost Restaurants or Cloud Kitchens.
The concept of cloud-based kitchens is very beneficial for the restaurant industry. Establishments can save money and other resources by not setting up a physical presence.
Furthermore, on-demand services allow users to create their own menus and customize cooking styles. In addition, users can also see feedback from past customers.
Rise of Food Delivery Startups
The world is constantly changing, and everyone has to adapt to it. In fact, the world has already changed faster than ever since Covid-19. The rise of tech-based discoveries has created new consumer habits, and food delivery apps have become a big part of the food industry.
Even though many startups created food delivery apps, not all got to succeed. A food delivery app must be built on top of a foundation of proven principles to be successful. It is also very important to understand the various facets of the food delivery industry to develop a successful app.
Here Are Some of the Aspects Food Delivery Startups Should Cover:
- Analyze competitors
- Study consumers’ food habits
- Create a stable brand name
- Ongoing project cost check
Innovative features are crucial to success. Therefore, food delivery platforms should strive to build features that will make the app stand out from the competition.
Such features can be bonuses to drivers or a quick and user-friendly app interface. A good app should also have a loyalty program or a wallet system that will allow customers to save and receive rewards.
These programs are generally popular with the customers. However, the app should also make the restaurants happy. Making restaurants happy will lead to more businesses signing up.
In addition, the app should also have incentives that will satisfy the drivers, which should ultimately result in positive reviews from their customers.
The website/app should also be user-friendly. User-friendliness allows customers to browse restaurants, order food, and pay using mobile devices. Along with cash on delivery, card payment integration in the app will enable businesses to offer more discounts to customers and reorder.
Proper marketing is vital for the success of startup delivery companies. Marketing should involve various strategies such as social media, flyers, newsletters, etc. In addition, due to the continuous growth of the online food delivery industry, startups need to focus on the changing needs of their customers.
The right marketing strategy could help startups get listed and dominate the food delivery stock market.
Growth Opportunities in the Food Delivery Market
The food service industry is a competitive market, which means that establishments must stay on top of trends. Data collected by industry experts and published by food delivery companies helps keep track of the latest trends in the industry.
As new players emerge on the market, established food delivery stocks such as Zomato and GrubHub will need to keep up to maintain their dominance in the market. There are various food delivery companies niched to a specific target group.
Some of these include platforms that cater to vegans and healthy eating options. Currently, several companies deliver nutritious meals and snacks in areas mainly focused on vegan food.
Catering to a niched target audience helps food delivery firms improve their efficiency and compete effectively against other firms. One should also monitor the industry’s increasing number of virtual kitchens and pet food delivery businesses.
Potentially Prominent Future Sectors
Virtual Kitchen Application
Virtual kitchens are a new concept only available through the food delivery platform. The restaurants don’t have a physical location. Instead, the owners prepare meals in their kitchens, which helps businesses reduce costs.
In addition, businesses can transform their physical location into a virtual one. For instance, if a salad cafe opened a virtual sandwich café using the UberEats app, the users would be able to order sandwiches through the app but not at the restaurant location.
Food Trash Applications
One-third of all food the society produces gets thrown away each year. Through food waste applications, restaurants and supermarkets can help reduce food waste and provide low-cost food to those in need. One of the great examples of this concept is Food For All, a business that gives customers a 50% discount on unsold meals.
Crypto Food Orders
Due to the emergence of blockchain technology, people from various countries can now pay for food with cryptocurrencies. Several food delivery companies, such as Takeaway.com, Papa John’s Pizza, and Levy Restaurants, have started accepting crypto payments.
Accepting digital currencies as payment has raised the bar for food delivery businesses. In theory, it should eliminate the need for fraud prevention and improve the overall experience of ordering food.
Pet Food Applications
As the demand for pet food has become more sophisticated, the industry’s total revenue has increased significantly. In addition, the rise of online pet food delivery services has caused many companies to expand their operations.
Parents and Millennials are likely to use the convenience of online pet food delivery services to provide their pets with high-quality food. For pet owners, it’s a convenient and healthy way to spoil their pets.
Monster Pet Supplies, a UK-based company, launched a mobile app to simplify shopping for pets. The app features a simple and secure ordering process.
How to Invest in Food Delivery Stocks?
According to data collected by financial advisory firms, the total revenue of food delivery apps in the US grew to $26 billion in 2020, up from $22 billion in 2019. This is an upward trajectory for the industry. Improvement of technologies and the rising number of people looking for gig work contributed to the industry’s growth.
The rise of food delivery platforms is dictating this growing trend. For example, Just Eat Takeaway, a Dutch company, purchased the food delivery company Grubhub Inc. in 2020 for $7.3 billion.
Furthermore, due to the increasing competition from other food delivery companies, ride-sharing company Uber is expanding its service called UberEats. In addition, tech giant Amazon is backing the startup Deliveroo which went public in 2021. Meanwhile, retail giant Walmart decided to boost its own delivery service.
The rapid growth of the food delivery industry is expected to continue in 2022. According to estimation, the market size of this industry will reach $200 billion by 2025.
In countries other than the US, the number of people using food delivery apps has also increased. Moreover, food delivery stocks spiked despite the stock market’s plunge in March 2019, making most analysts remain positive on the industry.
Nevertheless, it is still important to take caution when investing in the stock market, including the food delivery stocks.
Top Food Delivery Stocks
Here is our list of notable food delivery stocks on the market.
Delivery Hero
Delivery Hero is a German online food-delivery service operating in over 50 countries. The company connects users with over 500,000 restaurants.
With a fast-growing base of users, many consider Delivery Hero a leading player in the fast-moving commerce category. Delivery Hero has quickly expanded beyond food delivery and into the quick commerce space, which delivers small order batches in under an hour.
In Q3 2021, Delivery Hero processed over 791 million orders, a year-on-year increase of 52%. As a startup, Delivery Hero started as a gig economy company that enables its drivers to deliver packages using their cars and motorcycles. While its headquarter is in Germany, the company has workers and offices are all around the world.
However, Delivery Hero does not classify its drivers as employees, which has resulted in various legal battles and labor disputes linked to the company’s closures in multiple countries.
Funding
In November 2011, Delivery Hero secured its first funding of four million dollars, with Holtzbrinck Ventures, Team Europe, Kite Ventures, Tengelmann Ventures, and ru-Net investing four million dollars. The company’s second funding took place in April 2012. Again, the group of existing investors led the financing and raised 25 million to support the company’s international expansion.
In August 2012, the company received another 40 million in funding, mainly from Kreos Capital and Kite Ventures. Later, Delivery Hero received a $30 million boost from Phenomen Ventures in Series D funding. In January 2014, Delivery Hero secured a Series E funding of $88 million, while another $85 million followed a few months later.
In September 2014, Delivery Hero received a further $350 million in funding, the most significant European startup investment since 2009. The company’s existing partners and Swedish fund Vostok Nafta secured this investment.
During the year 2014, the company raised another 287 Million from Rocket Internet, which brings the total amount of funding to 496 Million. Later that year, Rocket Internet increased its ownership of Delivery Hero to 39%.
However, in February 2018, it reduced its stake. Allegedly, the current shareholding of Rocket Internet is around 21%. In May 2017, Naspers, a global media and entertainment group, made a significant investment in Delivery Hero.
Delivery Hero Investments
In December 2017, Delivery Hero led a Series B funding round for Rappi, the largest on-demand delivery platform in Latam. Delivery Hero has invested $105M in Rappi and now holds a 20% stake in the company.
However, Rappi will continue to operate as an independent company. Furthermore, as of December 2021, Delivery Hero also owns an 83.4% stake in the Spanish food delivery startup Glovo.
In March 2021, the Dutch financial firm Prosus increased its stake by 8.2%, making it the largest holder in Delivery Hero. In the same month, Delivery Hero acquired the assets of Woowa Brothers, which operates the biggest food delivery company in South Korea.
Company website: https://www.deliveryhero.com/
Deliveroo
Deliveroo is an online food delivery company that operates in over 200 locations. It was founded in 2013 by Will Shu and Greg Orlowski in London, UK.
Its subsidiary company, Deliveroo Editions, operates a network of ghost kitchens that are located off-site from restaurants.
This food delivery stock got its first listing on London’s Stock Exchange in 2021.
The study conducted by Capital Economics revealed that the company has helped create over 7,000 jobs in the restaurant industry since it launched in 2013.
The report also noted that the company’s creation of these jobs contributed to the UK’s economy’s growth. Deliveroo is a fast-growing platform competing against the likes of Just Eat, UberEats, and GrubHub.
In 2016, Deliveroo had around 800 employees. According to another media report, the company had 6,500 riders. In September 2016, it was reported that Deliveroo had 20,000 self-employed drivers. Next year, the company stated they have 30,000 riders globally.
Funding
In 2014, Deliveroo raised a series A funding of £2.75 million from investors Hoxton Ventures, Index Ventures, and some angel investors. In January 2015, the company secured $25 million in Series B funding. It was led by Accel, Index Ventures, and Hoxton Ventures.
During this time, the company provided food delivery for around 750 restaurants. In July, it secured another $70 million in funding, which marked its third funding round in a year.
Later in November of the same year, the company raised a $100 million Series D funding, which was followed by a $275 million Series E funding in August 2016 from Bridgepoint. In September 2017, the company secured a Series F funding of $385 million. In November of the same year, the total amount raised by the company reached over $480 million.
During the month of May 2019, the food delivery startup received $575 million in funding led by Amazon. This amount brings the total amount raised to around $1.35 billion. In January 2021, Deliveroo raised $180 million in Series H funding, bringing the total amount to $1.53 billion.
A few months later, in March 2021, the company stated its intention to list its shares on the London Stock Exchange through an IPO. This food delivery stock debuted on March 31. However, its shares lost 31 per cent of their value on its first day. The company’s share price recovered to its initial offering levels in August 2021.
Company website: https://corporate.deliveroo.co.uk/
GrubHub
Grubhub is an American online and mobile food ordering platform connecting consumers with local restaurants. The company was founded in 2004, and the headquarters are in Chicago. Since June 2021, Just Eat Takeaway has been the owner of GrubHub.
As of 2019, it had almost 20 million active users and 115,000 restaurants in 3,200 cities and all 50 states.
Seamless Merger
In May 2013, Seamless and Grubhub announced that they would merge. As a result, Seamless would represent 58% of the equity while Grubhun would represent 42% of the equity. The two companies finalized this unity in August 2013. and GrubHub became the majority shareholders of the combined company.
IPO
In April 2014, GrubHub became a publically traded food delivery stock. As a result, the company received a New York Stock Exchange listing under the ticker symbol “GRUB”. The price per share was $26.
Announced Acquisition
In May 2020, it was revealed that ride-sharing company Uber had approached the company about a merger. Then, in June, JustEat Takeaway announced that it would acquire the company for an in-stock deal of $7.3 billion.
The acquisition would create the biggest online food delivery company outside of China. It would also give JustEat Takeaway a foothold in the US. North America’s headquarters would stay in Chicago, with Matt Maloney, the founder of GrubHub, leading the company’s operations in the region.
On June 10, 2021, JustEat Takeaway took over the operations of GrubHub. The transaction was completed on June 15, 2021. After the acquisition, the company edited its Grubhub logo to include the Just Eat Takeaway brand.
Delivery
In June 2014, the company launched its delivery service for restaurants that don’t have their own delivery service. Two years later, in 2016, the company served over 50 cities across the US. In 2018, it expanded its reach to 8 new cities.
In the UK, Grubhub’s competitors include Deliveroo, JustEat, and UberEATS while in the US, its competitors include Postmates, Amazon Restaurants, and DoorDash.
The company launched its new monthly subscription program called Grubhub+, in February 2020, which provides unlimited food delivery from participating restaurants for a monthly fee.
In 2021, the company announced that it has partnered with Yandex to enable food delivery robots on the platform.
Company website: https://www.grubhub.com/
Lyft
Lyft is an American transportation company that develops and markets a mobile app. The app offers a variety of products and services, such as ride-hailing, motorized scooters, car rentals, and food delivery.
It is based in San Francisco and currently operates in over 600 cities in the US and Canada. Unlike traditional car rental companies, Lyft does not own any vehicles. Instead, it gets a commission from each booking.
Although the prices are quoted to passengers in advance, they can vary depending on the availability and demand at that time. With a 32% share of the US market, Lyft is the second-largest ride-sharing company in the USA behind Uber.
History
Two computer programmers, John Zimmer and Logan Green founded Lyft in 2012. Zimmer and Green worked together for Zimride, a long-distance carpooling company they founded in 2007.
Initially, Lyft came to life as a service of Zimride. Green came up with the idea for Zimride during university while he used Craigslist to find a reliable driver and passenger for his trips to Los Angeles.
After Facebook opened its API to developers, Green came up with the Zimride link to connect drivers and passengers. Using Facebook’s profile information, both drivers and passengers could connect and learn about each other.
Zimride was launched at Cornell University. After six months, the service had already signed up 20% of the campus.
In 2013, the company changed its name to Lyft.
In April 2020, the company laid off almost a thousand employees to decrease its operating expenses. A few months later, in August 2020, the company started a partnership with Sixt, a car rental company.
Through the partnership, Sixt will allow users to access its cars through the Lyft app through the partnership. Lyft will receive commissions from each rental.
Later that same year, the company announced that it would launch a multi-city robotaxi service in the US in 2023 with Motional.
In April 2021, the company sold its self-driving car business to Toyota for $550 million.
Company website: https://www.lyft.com/
Hello Fresh
HelloFresh is a publicly-traded company in Germany that provides meal-kit services. It is the leading meal-kit company in the US. It also has operations in other countries such as Australia, Canada, New Zealand, and Sweden.
HelloFresh has been listed on The Frankfurt Stock Exchange since 2017. This food delivery stock went public via IPO.
HelloFresh’s model is simple: It delivers the ingredients needed to prepare a meal to its customers, who then cook it using recipe cards. HelloFresh’s standard two-person meal is usually delivered three times a week and costs about $60 to $70. HelloFresh provides a “Rapid Box” service in certain markets, which takes only 20 minutes to prepare.
HelloFresh has added Green Chef’s organic and gluten-free meal plans to its lineup. These plans are also compatible with Paleo and Keto diets.
Company website: https://www.hellofresh.com/
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This article was last updated on April 8th, 2022.
