The global food delivery industry was seen to be facing a reckoning at the beginning of 2020 after the industry raised and lost billions of dollars for years.
After losing its foothold on the market, Grubhub, one of the pioneers in the food delivery businesses, was contemplating selling off of its business at the start of this year. There were also reports of similar measures as well as mergers were being contemplated by its competitors such as DoorDash, Postmates, and Uber Eats. A fundamental shift for its meal delivery service: focusing on profitable growth, on the other hand was signalled by Uber’s CEO.
But the covid-19 pandemic changed everything for the industry.
An almost perfect condition was created for the food delivery companies by the health crisis which also brought with it an economic crisis. There was a large number of unemployed who were looking for work, billions of people forced to stay mostly at home because of the pandemic and have food delivered to them while a greater dependency on takeout and delivery for restaurants.
There was sudden and massive growth in demand for delivery services.
With its core business coming to almost to a halt during the pandemic, Uber focused on its Eats business. And with other companies securing hundreds of millions of dollars in capital and expanding their services of deliveries from electronics retailers and convenience stores, there was a sudden spurt in the valuations of companies like Instacart and DoorDash.
The service had “become ingrained in the lives of local communities as an essential service”, commented a lead investor in the recent DoorDash funding round. And at the end of the year, DoorDash is preparing to go public driven by its pandemic-fueled demand.
“The stars have aligned. This is basically the perfect time for last-mile delivery companies to go public,” said Asad Hussain, lead mobility analyst at data research firm PitchBook. He also highlighted a number of reasons, including the unprecedented shift in demand from the pandemic as well as recent consolidation in the sector.
“They’ve been an enormous beneficiary of the shift,” said Semil Shah, who was an early investor in both DoorDash and Instacart, which is reportedly eying an IPO next year. “I think both companies would’ve gone public at some point — I think it is unclear whether they would’ve gone public now without the pandemic, maybe it would’ve been a bit later, but who knows.”
However, a warning that its boom in the pandemic may not last forever was issued by DoorDash in its IPO paperwork. The company had raised $2.5 billion from investors including SoftBank and Sequoia Capital previously. “The circumstances that have accelerated the growth of our business stemming from the effects of the Covid-19 pandemic may not continue in the future,” the company said.
For companies like DoorDash, it will be a problem to continue with their existing model of using independent contractors after the pandemic is over and with improvements in economies. There can be legal problems for the companies because the independent contractors don’t have the same costly benefits and labor protections as employees would.
This business model “survives by essentially forcing workers to compete with each other in a race to the bottom,” said Rebecca Givan, an associate labor studies professor at Rutgers University.
“While the economy is bad and unemployment is high, there’s always going to be desperate workers who will probably be willing to work on these apps even for very low pay,” added Givan.
(Adapted from CNN.com)