The 2 Big Winners in the Food-Delivery Business
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For an industry with huge potential upside, food delivery is also a minefield for investors. Raging competition has weighed on margins, and large restaurant chains have been able to negotiate for lower rates, industry experts say. Now, one big player is facing regulatory worries.
Grubhub (ticker: GRUB) said in a letter sent on Wednesday to the New York City Council that it will create a task force to review claims that restaurants were charged by Grubhub for phone calls that didn’t result in orders.
Grubhub’s standard contracts sometimes charge restaurants when customers use phone numbers they access from the Grubhub app on the assumption that those calls resulted in orders, but some restaurants say that they’re being charged for calls where customers didn’t make orders. Council members threatened to pass new legislation aimed at combating such fees after they came to light several months ago.
The Grubhub task force may not quiet the Council, however. Some members want the restaurants to receive full refunds going back years, the New York Post reported. Grubhub said in the letter that it is willing to review charges going back 120 days but doesn’t hold on to phone-order data longer than that, in part because of consumer-privacy concerns.
Bernstein analyst Sara Senatore, meanwhile, came out with a new report on which companies can benefit from the growth in delivery options. Right now, most people still pick up their own fast food, even though they rarely eat it at the restaurant. Of the $282 billion worth of fast food eaten each year, 77% is consumed off-premises, but only 9% is delivered, she calculated.
“We expect this delivery mix to continue to shift higher in the years ahead as aggregators make delivery broadly available,” she wrote.
While pizza-delivery growth has flattened out, nonpizza delivery sales have grown at a 15.4% compound annual growth rate since 2015, Senatore wrote. She sees McDonald’s (MCD) and Chipotle Mexican Grill (CMG) as two big winners from the trend, as those chains continue to grow their delivery business. “Chipotle’s younger, more affluent consumers and travel-friendly food makes it particularly well positioned,” she argued.
