Of all the ways that the pandemic has permanently changed the way we live our lives, perhaps the greatest is how we order food. With restaurant shut downs, so many working from home, and the increasing digital sophistication, many of us have probably ordered more food online in the last two years alone than in the previous 20 combined.
The question for investors is which of all the available platforms is going to be the smartest place to put their money. While there's been massive customer adoption, razor-thin margins feed uncertainty that instant delivery services can profit on a large scale.
We're well past the introduction phase of business cycle and into the growth phase. So, who's got the model to dominate the maturity phase?
Companies like GrubHub and Uber Eats have become household names, with DoorDash (NYSE:DASH) having captured 60 percent market share of the convenience delivery industry. So, it seems like they're poised to become the Google, Xerox, or Kleenex of this tranche of e-commerce, right?
Probably not. As another Seeking Alpha writer laid out in great detail, the company's growth momentum has started to slow while higher profits still remain beyond its reach. DoorDash's gross order value (GOV) has slowed from a lofty 70% in Q2 2021, according to the most recent financials, down to a predicted 14-19% GOV for 2022.
So the brakes have been slammed on DD's growth, while the food delivery market is expected to continue to grow at CAGR 11% until 2025. DoorDash is in a weaker competitive position than it appears, and the stock (DASH) is too expensive - with the author going so far as to say Dash Away From DoorDash.
Growth without profitability is not sustainable.
The fundamental problem with many of these delivery services is that they rely heavily on third-party vendors. On the one hand, the delivery company can benefit from another company's brand - McDonald's, Pizza Hut, etc. But on the other hand, there's a step in the supply chain that's completely out of the delivery company's control. So, if the third-party makes a mistake with the order, the customer may kill the messenger.
One company that seems to have realized this and pivoted away from it is Philadelphia-based Gopuff, whose product line looks like the aisles of a convenience store, nonperishable food - like snacks, soft drinks, and ice cream - and household items - like toiletries, batteries, pet food, and diapers. They even have their own branded bottled water now.
It was started as an on-demand hookah deliver service, founded in 2013 by two Drexel University students, Yakir Gola and Rafael Ilishayev. In 2017, they were named to Forbes Magazine's 30 Under 30 list for ecommerce and Target Marketing's target makers of the year.
Their goal is to make Gopuff more like Amazon than like Uber. That was the elevator pitch captured in a recent Axios profile, with vertical integration that hasn't even occurred to its competitors. Whereas the aforementioned companies rely on someone else to provide the goods, Gopuff has almost 600 micro-fulfillment centers, up from 380 in 2020, filled with the staples of daily life. Cutting out the third-party vendor, Gopuff ships directly to its customers who are saved a trip to 7-11 or the corner grocery store.
There's a flat delivery fee of under $3, plus any margins on users' orders, and claims a 4.9% profit per order - profit they don't have to share with anyone.
With coverage for about 30% of the US population in mostly high-density areas, Gopuff had 3 million users and more than $2 billion in revenue. Its US sales grew 53% year-over-year in 2021, after a huge COVID-related surge of 173% in 2020, according to market research firm YipitData, which also determined that Gopuff has 73% of the first-party platform convenience delivery market. Gopuff also has a growing footprint in the UK, France, and Spain.
Furthermore, Gopuff is scooping up highly lucrative alcohol licenses, with more than 400 already in 30 states. They've had a beer-delivery service called goBeer since 2015 and acquired the Liquor Barn chain in 2021.
VCs have valued Gopuff at $15 billion ahead of a predicted 2H2022 IPO.
Convenience delivery services will continue to grow. Restaurant deliveries will probably never see the same numbers they did during COVID, but the demand for nonperishable goods delivered to your doorstep will only increase. As investment opportunities with Gopuff open up for the rest of us, consider this a strong buy.
This article was written by
Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.