U.S. online food delivery market is 5 times bigger than the Indian market
August 6 2021 - Team Stockal
Yes, you heard that right!
The U.S. online food-delivery industry was worth over $21.7 billion in 2020 as compared to the industry size of $4.2 billion in India which is relatively under-penetrated. The recent data in the U.S. reveals that the meal-delivery services grew 20% year-on-year in June 2021. The U.S. consumers’ online food delivery orders accounted for 49% which was up from 41% a year ago. The upward trend continues after 2020 saw the meal-delivery industry reaching new heights among U.S. customers.
Exhibit 1: U.S. Meal delivery Industry continues to grow in 2021
Source: Bloomberg Analysis
DoorDash dominates the U.S. food delivery market with a 57% market share
DoorDash (DASH), one of the largest food delivery apps with over 57% market share in the U.S. as against 18% in 2018, operates in around 4,000 cities and has over 340,000 stores in the U.S and Canada. It coordinates the activities of all three segments involved along the delivery chain: Restaurants, Delivery Agents (Dashers) and Customers and by far the largest third-party delivery service in the U.S.
Customers can order from a whole host of menus from the comfort of their homes and restaurants have the advantage of expanding their online presence and serving a larger market without having to hire their own delivery agents. Dashers, who provide real-time location updates to customers, receive a flat amount per delivery made on a weekly basis. Today, the platform boasts over 20 million active consumers and processed $9.9 billion in Gross Order Value (GOV) in Q1 2021. The company has about 20 million Monthly Active Users (MAUs) currently and the total orders grew over 3x in 2020 to 816 million orders. (Exhibit 2)
Exhibit 2: DoorDash’s total orders as of Q1 2021
Source: Data taken from Company financials
DoorDash’s revenue sources
The company earns its revenues from these four sources:
Commissions: The company charges a service fee of around 20% to the restaurants for collaborating with them and for the delivery program. Restaurants are fine with paying these commissions as they are able to reach a wider audience base and have the delivery system at their disposal.
Advertising: The company has monetized on its customer loyalty and by also helping the restaurants grow. Restaurant owners make use of the app to promote their business and reach out to their customers about special discounts and offers.
Delivery Charges:The charges have been quite minimal when it comes to DoorDash’s delivery fees which range between $5-$8 per order.
DashPass: This is a subscription model offered to its customers which helps them save on delivery charges and service fees which is priced at $9.99 every month and helps the customers save about $4-$5 on each order. Customers with the pass do not have to pay for delivery service over $12. Hence a win-win for both.
Recent developments of the company
- During Q1 2021, the company established new quarterly records in terms of total orders and Marketplace Gross Order Value (GOV)
- Improved consumer retention drove average order frequency to an all-time high
- Grew orders from non-restaurant categories by over 40% quarter-on-quarter
- The company also aggressively invested in merchant services, new categories and international markets
Key Financials from Q1 2021
- As of Q1 2021, revenues grew 198% year-on-year to $1.1 billion and total orders grew 219% year-on-year to 329 million and the market Gross Order Value (GOV) which refers to the total value of completed orders grew 222% year-on-year to $9.9 billion.
- GAAP Gross profits were up 233% to $493 million in Q1 2021, from $148 million in Q1 2020.
Exhibit 3: Key Financials of DoorDash (Q12020-Q12021)
Source: DoorDash Quarterly Earnings Report, May 2021
How Big is DoorDash as compared to its peers?
DoorDash, which went public in the U.S.in 2020 is three times bigger as compared to its Indian counterpart Zomato and in terms of valuations; 15 times bigger than Swiggy or Zomato at $55 billion during its IPO listing. DoorDash grew quite rapidly and took the company only 5 years to become a unicorn (a term used to describe a company that is worth over $1 billion). The stock surged nearly 90% in its stock-market debut with a network of 450,000 active monthly merchants as of December 2020. DoorDash has the largest reach among its peers (Exhibit 4) and is processing 816 million orders in 2020 which is 4x of Zomato’s orders.
Exhibit 4: Active Merchants (Restaurants) and Annual Orders of key players
Source: Jefferies Analysis, Company Filings
DoorDash’s average order value at $30.73 is five times higher than the order value of Zomato at Rs. 398 (which is around $5.5) (Exhibit 5) With this kind of volume, it makes it difficult for any Indian player like Zomato or Swiggy to compete with global players like DoorDash.
Exhibit 5: DoorDash’s average order value is over 5 times higher than Zomato or Swiggy
Source: Company Financials, Goldman Sachs Analysis
Revenues and increased commissions
Globally, delivery platforms have seen a huge spurt in their orders post the pandemic as they offer convenience. However, most companies are still making losses at an operating level including the global matured players. Food delivery companies are facing increasing scrutiny for squeezing small businesses’ margins by charging significantly high commissions which are as high as 30% of the order value. Zomato bills its restaurants anywhere between 18-25% which is among the highest globally and DoorDash charges less than 15%.
In FY21, Zomato tried to improve its profit margins by increasing its commissions charged from restaurants, higher delivery charges and reduction in discounts and thereby losing its customers. This impacted the overall sales of the company even though it tried to increase its revenue per order.
Exhibit 6: Revenues of DoorDash and its peers
Data as of July 2021, | Source: Bloombergquint.com
When we look at the Price to Sales (P/S) multiple of these companies, DoorDash is valued at a Price to Sales multiple of 17x. Besides, DoorDash’s revenues grew 200% and 268% respectively before and after the listing in 2020.
DoorDash’s stock has rallied over 25% year-to-date in 2021 and has significantly outperformed the S&P 500 index and the sentiments for the company picks up after its impressive Q1 earnings as the company has raised its full-year revenue guidance and will be soon reporting its Q2 earnings. The company focuses on expanding into new geographies and going beyond its core food delivery vertical with its announcements of new partnerships for groceries and other items. Investors feared that DoorDash would see a business slow down as the economy re-opens, however, these fears faded away as the company upped its guidance for its Gross Order Value (GOV) for this year to $35-$38 billion up from the previous guidance of $30-$33 billion which marks a year-on-year growth rate of 55% giving investors the positive growth prospects going forward.