Profitability of On-Demand Food Delivery Businesses

Profitability of On-Demand Food Delivery Businesses

By
Michael Marks, Jackie Foroughi
2017|Case No.SM270| Length 27 pgs.

By 2017, pervasive mobile connectivity and the rise of the on-demand economy resulted in an explosion of businesses attempting to fulfill immediate consumer demand in the food delivery market. A broad, secular shift was occurring: Online or mobile orders were rapidly replacing the traditional method of picking up the phone to call in takeout and delivery orders.

Still, concerns began to arise as market participants struggled to raise funding amid an uncertain investing climate in 2016. Meanwhile, despite rapid consolidation amongst industry players, the market remained highly competitive with up to a half-dozen players vying for customer attention in some locations. In addition, the arrival of logistics platforms, Uber and Amazon, into the food delivery space posed a serious competitive threat, while companies in segments not in direct competition, such as local delivery platform Postmates, continued to chip away at market share.

As a result, questions arose regarding the long-term profitability of food delivery businesses. Specifically, observers wondered whether the businesses could make money, who was best positioned in the marketplace, and what aspects of each business model would prove to be an essential competitive edge.

This case examines the challenges facing the on-demand food delivery market. It provides a brief history of food delivery, an industry overview, a summary of predominant food delivery models and predominant U.S. food delivery companies, an in-depth look at industry trends, and a brief view toward the future of online food delivery.

Learning Objective

Provide students with an opportunity to analyze the profitability of on-demand food delivery businesses while considering factors such as differentiation, competitive strategies, capitalization, and unit economics.

This material is available for download by current Stanford GSB students, faculty, and staff, as well as Stanford GSB alumni. For inquiries, contact the Case Writing Office.