Meal delivery had already become table stakes for all restaurants, big and small, chains and independents. Then in 2020, the pandemic-driven stay-at-home lifestyle created a surge in consumer online ordering and food delivery. Competition among third party delivery companies became intense in the battle for market share with DoorDash grabbing the lion’s share. But free offers and discounting has taken its toll on profitability and there has been significant consolidation among meal delivery firms.
So it’s no surprise to see DoorDash leveraging its delivery infrastructure into adjacent verticals such as C-stores and pharmacies. Other verticals will follow. Still, headwinds are lurking for the delivery firms, including regulatory issues and pushback from restaurants on fees. Mercator covered these issues in a January 2021 Viewpoint Third-Party Delivery Firms Form Necessary but Uneasy Alliances with Merchants.
The following excerpt from a Wall St. Journal article reports more on the topic:
Food-delivery platform DoorDash is now trading nearly 90% above its initial public offering price just as vaccines are being broadly distributed in the U.S. and restaurants in some of its largest markets are poised to reopen outdoor dining. So why isn’t this stock a screaming short?
The answer may be more about convenience than taste. In addition to restaurant delivery, DoorDash has been building up its market share in third-party delivery for other goods, such as those from the likes of 7-Eleven, Wawa, Circle K and CVS. Post-pandemic, those ancillary opportunities could prove to be more central to DoorDash’s growth thesis than bearish investors are appreciating.
In his DoorDash initiation report, JPMorgan’s Doug Anmuth calls food delivery a “forever changed category,” noting that while growth may slow, activity will remain elevated, given consumers’ value of convenience and selection. He cites new verticals, such as convenience, grocery and pharmacy, as key growth drivers.
Overview by Raymond Pucci, Director, Merchant Services at Mercator Advisory Group
