Grubhub’s new CEO had “difficult” news for its 2,800 employees on Monday. While food delivery apps have thrived during the pandemic, 15% of workers will now lose their jobs.
“We operate in a competitive and ever-evolving industry, and we need to constantly review whether we’re set up correctly,” Howard Migdal wrote in a company-wide email.
The US-based app owned by Amsterdam-based Just Eat is not alone. Zomato recently closed operations in 225 Indian cities, Deliveroo pulled out of Australia and DoorDash laid off 1,250 employees, or 6% of its workforce.
The food delivery is overdue and not cleared. Domino’s has been delivering food to customers for decades, and today’s app is inserting itself into an already relatively tight margin business by taking advantage of excess capacity. They connect diners with drivers and restaurants, allowing them to serve more customers than enticing them to dine or pick up.
Estimates of the global food delivery market range from $167 billion to $300 billion. But revenues have skyrocketed in recent years, thanks to two factors that have since disappeared. Expansion is financed by cheap capital that bridges the gap between true delivery costs and what customers actually pay. The pandemic lockdown has boosted growth by limiting competition at dine-in restaurants and other entertainment venues.
The boom is so extraordinary that existing foodservice brands such as US burger chain Wendy’s and UK-Indian group Dishoom are trying to capitalize on it by not only listing their restaurants on delivery apps but also opening delivery-only “ghost kitchens”. profit.
Now that those tailwinds have passed, available margins on eating at home have been eroded by higher food and other costs and tight diner budgets. “There’s a problem across the delivery space. It’s getting harder and harder to make money,” said Peter Backman, an independent food industry analyst.
Restaurants have live customers again, and pandemic-era caps on app fees are about to expire. They’re less enthusiastic now about taking away 15% to 30% of their partners.
Several restaurants in my New York suburb have switched to proprietary online ordering systems. A local pizzeria even included a note with my most recent DoorDash order reminding me that I could save nearly 30% if I contacted them directly. US brands Wendy’s and Applebee’s have also scaled back their ghost kitchen plans.
Jefferies analyst Giles Thorne remains confident that food delivery apps can generate sustainable revenue, especially as comparisons to the extraordinary pandemic era fade. “There’s a huge segment of society that’s willing to pay $4 to buy back 45 minutes of their time,” he argues.
But now that investors are demanding profits rather than just growth, it will be a struggle to get freight rates down. The layoffs will help reduce overhead, but it won’t be enough. Food delivery apps need to find other ways to cut costs, especially if they want to expand into new areas without relying on big subsidies.
Some have moved to “bulk” orders, where one courier makes multiple stops. This can work in dense urban areas full of busy restaurants. It also explains why DoorDash and Uber Eats often offer second stops for diners who have already ordered. But batch processing done poorly can alienate customers of the app, who watch in real time as hamburgers take a detour and fries get soggy.
Promising to deliver everything to everyone can be futile. Well-known local restaurants can strengthen their bottom line and maintain their gastronomic reputation by focusing on dine-in and delivery.
In fact, many communities will end up with the latest versions of ghost kitchens that cook multiple cuisines under virtual brands. That makes it easier to attract enough nearby customers to keep delivery affordable. ClusterTruck, an Indianapolis-based pioneer, aims to get entrees from the stove to the front door in less than seven minutes, allowing drivers to make at least four trips an hour.
Foodies might scoff at the idea of ordering pad thai, pizza, and burritos all in the same kitchen. But things aren’t much better: A Manhattan deli is trying to sell itself to 27 different restaurants (including a taco bar, a bagel shop, and several burger joints) by listing itself on Grubhub and other apps. ) to maximize order volume.
The daydream of cheap good food on every doorstep is giving way to today’s leaner reality.
brooke.masters@ft.com
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