Prediction: As I first predicted back in 2019, I believe several major food delivery companies will consolidate and merge sometime this year.
At the moment, DoorDash, Postmates, UberEats, and Grubhub (which also owns Seamless), are all competing for the same customers with little-to-no competitive distinction between them, sparking steep discounts and profit loss to stay competitive. (Grubhub stock was down nearly 40 percent as of Q4 2019.) This is not a tenable situation.
Delivery itself is not a particularly innovative or new concept. The pizza industry pioneered the delivery model around 60 years ago. These startups have done a great job of digitizing the ordering process and making a wider variety of food available for customers, but we’ve hit a tipping point where the breadth of choice is too overwhelming.
Aside from more choice and a switch from phone orders to apps, overall innovation is lacking and the pain points of the industry are vast. UberEats and Postmates are attempting a subscription model to drive customer loyalty, but that’s not enough to cement either of them as a clear leader in this space, and UberEats is a consistent financial strain on Uber. Restaurants don’t love the system, as they’re forced to pay 20-30% of each ticket, cutting into their already slim margins. And while consumers enjoy the convenience, the delivery experience itself is also not great across any of the competitors. The food often arrives soggy, cold, messy, and with varying degrees of accuracy.
Their Achilles heel and the biggest driver of the consolidation that I predict stems from the fact that they purport to be convenience-based disruptors, but are in fact intermediaries looking to create a toll booth inside the restaurant industry. That is a hard position to defend over time, particularly when there is a lack of follow on innovation that differentiates or creates a unique value proposition. Without a competitive moat to safeguard against replication and disruption, more profit nosedives like the one we’ve seen from Grubhub are likely to continue. And for those companies still seeking new rounds of investment, the swift decline of WeWork put a damper on the “growth at all costs” model, and investment capital is drying up fast for these types of companies. With profit-shrinking price-slashing as their only competitive advantage, can any of them secure a new round of investment? Consolidation seems like a more likely alternative.