Why Some Food Delivery Companies Are Benefitting From Lockdowns More Than Others

Geographic exposure, as opposed to virus exposure, becomes an issue.

But 30% of deliverers admit to sampling from customers orders? We'll be hearing more about that. JL

Laura Forman reports in the Wall Street Journal:

30% of food deliverers admit to sampling food from an order. Amid today’s pandemic, the number of germ-infested touchpoints involved in a grocery store visit may be even more paralyzing for consumers. As social distancing increased by late March, food delivery spending for the four largest players was up 10% collectively. The choice has benefited some delivery players more than others. Spending on Uber Eats and DoorDash climbed 24% and 10%, versus the previous week. Spending on Grubhub fell because of its disproportionate exposure to New York City.

Nearly 30% of food deliverers admit to sampling food from an order, according to a study published last year by food-service distributor US Foods. Amid today’s pandemic, however, the number of germ-infested touchpoints involved in a grocery store visit may be even more paralyzing for consumers. The choice has benefited some delivery players more than others.

Food delivery platforms like DoorDash, Grubhub GRUB 3.09% and Uber Eats have faced their share of obstacles over the last six months. Restaurants are pushing back on rich commissions, gig economy workers are lobbying for more benefits, and investors have shifted focus from growth at all costs to stable profits. This year has brought further roadblocks: The novel coronavirus has sidelined many delivery drivers fearful of high-touch exposure and weighed further on restaurants’ ability to pay hefty fees.

Yet, after a significant selloff over the last nine months, publicly traded food delivery names have begun to rebound on expectations that staying home means ordering in. While data suggest the next few months could be more appetizing for food delivery players overall, profit-starved investors still should be selective.

Data from SafeGraph Inc. shows foot traffic across U.S. grocery stores spiked in early March in an initial rush to stockpile before lockdowns began. During that period, U.S. food delivery spending declined week over week, according to data from Edison Trends. That dynamic changed, however, as social distancing recommendations increased. By late March, food delivery spending for the four largest players was up 10% collectively, while grocery store foot traffic declined.

Some food delivery platforms fared better than others. Edison Trends’s data show spending on Uber Eats and DoorDash climbed in the week ended March 22, up 24% and 10%, respectively, versus the previous week. Meanwhile, spending on Grubhub fell week-over-week in the first half of March and hasn’t yet recovered. Grubhub declined to comment on Edison Trends’s data but said its recent performance has been “a mixed bag.”

In an industry update earlier this month, Deutsche Bank analysts predicted Grubhub could benefit less from shelter-in-place orders than other industry players because of its disproportionate exposure to New York City, which has been hardest hit by the virus in the U.S. Further, the firm said Grubhub handles a large volume of corporate business, which could negatively affect orders in the near-term as more people work from home.

Earlier this week, Grubhub Chief Executive Matt Maloney said in an interview with CNBC that, at its worst point, his company had lost 30% of its restaurant customers in cities like New York City and Detroit “in the throes of the crisis,” though he also said that loss has been compensated by thousands of restaurants across the U.S. coming online for the first time.

In contrast to Grubhub, some of DoorDash’s recent strength may be attributed to its strong suburban presence, where orders are typically larger on average versus in urban areas, according to Deutsche Bank. RBC analyst Mark Mahaney says Uber’s shift in revenue from Rides to Eats could result in lower profitability for the company near-term, though he expects that to recover once lockdown regulations ease. In a business update call with investors last month, Uber said it had been offering free delivery promotions during the crisis to entice new orders.

Prepared food delivery isn’t the only business benefiting from consumers’ desire to avoid the grocery store. Some meal kit players like Blue Apron APRN -5.35% have been reborn this year. After losing nearly 60% of its market value in 2019, Blue Apron is up over 300% over the past month. Shares of international meal kit company HelloFresh HFG 0.90% have also done well, rising more than 40% year-to-date.

As consumers view supermarkets like petri dishes, they should tolerate a few missing fries for the comfort of food delivered to their doorstep.