The $27 billion business of food delivery

While the business of delivering food to hungry customers may be a multi-billion-dollar opportunity, success won't come easy. Grubhub has lost money in the last five quarters and, based on Nasdaq’s consensus of analysts that tracks the stock, that isn’t about to change anytime soon. In fairness to Grubhub executives, the company has shown revenue growth, likely due to rising demand.

The story of rival Uber is no different, as its Uber Eats segment lost $461 million in EBITDA in the fourth quarter ending December 31, 2019, a negative change of 66% from the same quarter one year earlier. Uber reports earnings for its different segments only on an EBITDA basis. Just to show how powerful the growth of the delivery business is, Uber’s fourth quarter has a total of $4.37 billion in gross bookings for the Eats segment, which means consumers bought about $4.4 billion in food globally through Uber in that quarter.

Uber sold its Uber Eats India operations in January to rival Zomato for a 9.99% ownership in Zomato. Square exited the food delivery business by selling its Caviar delivery unit for a $410 million mix of cash and stock to market leader DoorDash in 2019.

Tipping is a cultural expectation in the U.S. for many services, and food delivery is no exception. According to a recent study by U.S. Foods of 1,518 U.S. adults who have used a food delivery service, 95% of consumers report that they regularly tip drivers. Fifty percent said that they determine the tip on a case-by-case basis while the rest do so on preset standards.

For those who use a preset standard, the survey was split evenly between those choosing a set dollar amount and those choosing a set percentage of the total paid.

More than half (57%) of consumers tipping paid $4 or more to their driver for each delivery. Factors that could influence the tip amount include wait time and weather, as 41% of consumers decide on the actual tip when the food gets delivered. In contrast, 59% of consumers decide the tip amount when ordering the food, easing the friction of the payments experience.

One factor some consumers may consider is whether or not the driver has eaten part of the order during the drive to the consumer’s house. The study found that 21% of consumers have suspected their deliverer of taking food from their order. Interestingly enough, the survey also found that 28% of drivers admitted to having taken food from an order they had delivered over the course of their job.

Millennials, who are known for using their smartphones for buying almost anything, are clearly part of this food delivery movement.

“Millennials, in particular, are also used to acquiring everything they need or want through their smartphone. This generation has indicated they are willing to pay a premium in exchange for convenience, so delivery companies have a viable business based on the fees they collect,” said Hetal Pandya, co-founder of Edison Trends.

While no app covers every restaurant, and some have exclusive relationships (such as DoorDash and Little Caesars), all of the leading food delivery apps have been aggressively signing new restaurants. According to a study of the leading food delivery apps by Edison Trends, DoorDash has been almost four times as busy as its nearest competitor Postmates in signing new restaurants.

Edison Trends reports that the overall leader in total restaurants covered is Uber Eats. Nearly tied for second place are DoorDash and Grubhub.