The rise of the delivery app during the pandemic - and post-pandemic blues?

The rise of the delivery app during the pandemic - and post-pandemic blues?

For the last two years, delivery apps have aided the grocery and restaurant businesses to survive the woes of the COVID-19 pandemic, and their help hasn’t gone unnoticed. Near the latter half of 2021, food delivery as a global market was worth more than $150 billion, tripling its value since 2017.  

Now that most of the world has the pandemic in the rearview mirror, we’re transitioning to a post-pandemic period (it’s way too early to call it anything near a roaring 20s sequel). We don’t have a crystal ball to predict the future but let’s talk about the state of delivery apps for 2022 and onwards and what we’re seeing unfold at the moment.

Pre-pandemic

Captain Obvious (me) here to state that food delivery apps existed well before the pandemic and have had a steady growth in popularity for some time now. The US and UK have had a culture of pre-internet takeaway ordering and so it was natural for food delivery apps to emerge in the 2010s with the likes of Grubhub, Doordash and Uber Eats. Europe didn’t have the same pre-internet culture of ordering takeaway, so the market wasn’t as present as it was in the US and UK. Apart from Just Eat Takeaway.com, which was founded over 20 years ago in the Netherlands, Europe is characteristically smaller in market size and has had less competition. Generally speaking, food delivery was already pretty common and a rising market, but grocery delivery was not. That only came into life as a consequence of the lockdowns, which can be seen in the timeline below. Gorillas, Flink, Zapp, Cajoo and Jiffy are all grocery delivery apps founded in the pandemic period.

So what happened during the pandemic?

Well long story short: The delivery industry boomed during the pandemic. Food delivery may have already existed but it got a big boost once COVID-19 measures were in place. Food delivery apps quickly implemented features like “drop-off at the door” and added more restaurants to their service to balance out the fast-food chains. Like was said before, grocery delivery wasn’t such a hot market before the pandemic, or at least not “on demand” as it was during during the pandemic and now. Grocery delivery put the market on its head as grocery delivery apps became unicorns, suddenly changing user behavior. Even with the easing of COVID-19 measures, people still opted to work from home and order their groceries to their front door.

The restaurant and grocery store business models had to rapidly adapt to the new reality brought on by COVID-19. It was a sink or swim situation and delivery apps were life vests for restaurants and grocery stores to keep their heads above water. When people could no longer hoard toilet paper at the stores (what happened there?) and eat at their favorite restaurants, delivery apps were the answer and the circumstances helped them soar in popularity and demand. The bottom line is delivery apps assured restaurants and grocery businesses could keep running because delivering to people’s homes was necessary for them to:

What's in store for 2022?

It’s clear delivery apps had a grand ol’ time in being the popular kid during the pandemic, and it’s safe to assume they’ll be sticking around. Data from the National Restaurant Association’s State Industry report found that 68% of Americans are more likely to purchase takeout or delivery food now than they were before the pandemic. It all sounds great but we’re entering the “new normal” and however that may look will have an impact on delivery apps in terms of their value, demand, and growth. So let’s explore some things delivery apps should expect in 2022.

1. The demand for delivery will remain high, but not at the same level as it was during the pandemic

The title is self-explanatory but it’s true. Delivery apps are convenient for ordering, which has made them a standard part of everyday life. Yet, they won’t eclipse the same popularity and demand as they had during the pandemic. It is expected that the number of people opting to dine out will increase following the two-year hiatus, which will evidently affect the demand and value of delivery apps.

Bloomberg has recently posted about the 2022 Q1 stock value of European delivery apps, stating that Just Eat Takeaway and Deliveroo both fell more than 35% in stock value. Their combined value is less than half of what it was in December 2021. I am by no means a Warren Buffet but the value dropping so significantly must have something to do with the demand for delivery apps not being as high as during the pandemic. This may look ugly in the short term, but it was expected in the long term so there is no need to spam the panic button (yet?). The popularity of delivery apps was growing before 2020 and was accelerated thanks to the pandemic, so the decline in stock value doesn’t mean they’re in big trouble, but they must be feeling the post-pandemic blues.

Bloomberg article 

2. Commission costs will face resistance

High commission costs were something grocery and restaurant businesses had to bite the bullet on during the pandemic.

Starting with restaurants, the average restaurant already operates on narrow profit margins so you can imagine 30% commission costs (the highest rate) weren't ideal. Moving forward, with people coming back to dine at restaurants, the number of home delivery orders will drop naturally, which should see commission costs evening out. Restaurants will also start to favor delivery apps that offer flexible commission plans, and since there are multiple apps nowadays, restaurants will benefit from more bargaining power than before. And importantly, restaurants will rethink ways to attract customers to their stores, like promoting drive-thrus and curbside pickup options.

For grocery stores, the situation is similar to restaurants because they too will evaluate how they can attract customers back to their physical stores. That being said, supermarket chains have also been working on their own delivery services. UK-based supermarket Asda has begun a trial launch of their own one-hour grocery delivery service in collaboration with Buymie. Customers will have a personal shopper in-store to pick up their selected items and have them delivered to their door. This may not be the same as 10-minute or under 30-minute delivery but the personalized service puts Asda in direct competition with delivery apps. Why? The difference between grocery stores delivering and grocery delivery apps is the latter being based on speed of delivery. Grocery stores on the other hand provide more choice, and are less likely to make mistakes with their orders because they have more time.

3. Low switching costs

I’m all for “build it and they will come” but with the number of delivery apps available for people to choose from, the cost of switching between one from the other is low. You can build it for sure, and customers will come, but it’s not guaranteed they’ll stay. Quality of service and customer satisfaction are a priority, because unlike a golden retriever, people aren’t so loyal. You can expect customers to switch between services at the first hiccup with the service and experience of an app. Added to that, competition has increased big time, particularly when it comes to 10-minute delivery. With a lot of 10-minute delivery services out there, what separates one from the other will depend on the service quality (and good marketing too).

Finishing up your order

In 2022 we expect delivery apps to go through some “growing pains” but it’s still a pretty positive outlook. The major difference between now and before the pandemic is people across a range of demographics have experienced using delivery apps. There is a better understanding of how these apps work among a larger group of people. More people being versed in delivery apps means more will be inclined to use them as an option for grocery and dining. So restaurant and grocery businesses will continue to offer home delivery. It’s not like they are just going to discontinue their delivery option because their physical locations are accessible again (that would be a bold strategy if it was the case). To add, delivery apps have received serious funding since 2020 (see graph below). This should be seen as long-term investments and a genuine belief that delivery apps will continue to play a prominent role heading into 2022 and beyond.

To wrap this up, 2022 will see a slowdown in the rate of total industry growth. That means delivery apps weren't just a pandemic phase. It’s a young industry with plenty of potential to grow.