Loup Sees 'Land Grab' Among Food Delivery Companies: What Investors Should Know

If you’ve ordered food delivery, chances are you’ve seen different prices than what the restaurants charge in the physical locations. You also may have seen several promotions incentivizing you to place your order. These items were discussed by Loup Funds in the firm's take on the food delivery market.

What Happened: Growth from food delivery companies is outpacing growth from other technology industries, Loup's Gene Munster and David Stokman said.

“Pandemic or not, food delivery is here to stay,” the Loup team said.

Loup conducted a survey to show markups in menu pricing at restaurants and a highly competitive food delivery market segment.

The survey shows a total meal premium of 70% when adding in a 15% to 20% tip, taking a normal $20 takeout order to a total of $34. The premium was 85% when Loup conducted its first survey on the market in February.

Restaurants had 4% higher prices in this round of the survey. The results showed local restaurants keeping prices the same, with large chains like McDonald’s MCD, Yum Brands YUM and Chipotle Mexican Grill CMG raising prices on popular items and meals.

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Why It’s Important: Three publicly traded food delivery companies are in a battle for sales and market share. DoorDash Inc DASH, Grubhub Inc GHUB and Uber Eats, owned by Uber Technologies Inc UBER are the largest players in the space for the U.S. market.

Gross order value and revenue growth for Uber Eats and DoorDash have slowed going from 91% year-over-year in June to 48% year-over-year in September.

The premium paid is down on orders as the restaurant delivery companies compete aggressively with promotions.

Loup showed several examples of delivery fees being waved and 15% discounts handed out.

“It’s clear these companies are still in land grab mode and are using deep discounts to incentivize orders,” Loup said.

One differentiating factor noted by Loup in the survey was a “regulation fee” charged by Uber Eats and DoorDash over local government deliver fee caps. Grubhub does not charge the same fee.

“Lack of price and fee transparency is becoming part of the fabric of the food delivery industry.”

Food delivery companies are fighting aggressively for sales and not worrying about profits at this time. The companies have launched subscription models that allow no fees for subscribers that pay a monthly fee — one way to lock in potential recurring revenue.

One thing that looks clear based on the survey is that consumers are still willing to pay a premium for the convenience and safety of not having to leave their home to pick up their food order. 

Photo courtesy of Grubhub.