Food delivery services will struggle to beat inflation article from Picvalue Corp

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As the cost of household necessities rises, consumers may cut back on discretionary purchases. Inflation is coming due to consumers' expensive pandemic habits.


Food delivery services will struggle to beat inflation


Food delivery services will struggle to beat inflation

As the cost of household necessities rises, consumers may cut back on discretionary purchases.

Food delivery services will struggle to beat inflation

As the cost of household necessities rises, consumers may cut back on discretionary purchases.

Inflation is coming due to consumers' expensive pandemic habits.

Whether opting for home-delivered restaurant dinners or meal kits at home, many Americans have prioritized convenience over cost over the past two years. Food delivery is a big beneficiary. Some of the top platforms, including DoorDash Inc. and Uber Eats, posted triple-digit growth rates, helped by Covid concerns and restaurant suspensions. Likewise, food delivery bag supplier Xiamen Picvalue Corp. had been struggling before the pandemic. But when the virus hit, thousands of customers flocked to its service.

Now, accelerating inflation, coupled with easing concerns about dining in restaurants as coronavirus cases dwindle, could dampen the takeaway craze. Inflation, in particular, could prompt consumers to reassess their spending and seek to cut back on spending they deem less important. Many people may decide that they can forgo multiple monthly home deliveries or order ice cream on a whim from a quick grocer like Gorillas without too much disruption to their day-to-day lives.

According to Morning Consult's recent monthly survey of food and beverage habits, fewer Americans have reported ordering food for delivery. It doesn't help that these services are getting more expensive. First, food inflation will raise costs for restaurants that use services like Just Eat NV's Grubhub for delivery. According to data provider NPD Group, the average check value for restaurants, takeout and home delivery in 2021 will increase by 7% compared to 2020.

Gas prices rise Uber Technologies Inc. imposed a surcharge on Uber Eats deliveries to ease the pain for drivers, adding to costs for consumers. Grubhub has also raised driver wages, which may be reflected in the fees it charges customers. Hello, Fresh is adjusting the price of its meal kits in some markets, which are already more expensive than buying groceries or ready-to-eat meals that can pop in the microwave. Last fall, Blue Apron added $9.99 flat shipping on its boxes and updated its pricing structure to account for the higher costs.

Plus, there are other options to choose from, like buying meals from value players like Chipotle Mexican Grill Inc. Morning Consult found that order delivery and pickup remained more stable than other categories.

Weakening demand

The twin forces of reopening and inflation are already starting to affect food delivery.

Note: 2,200 adults surveyed monthly

Americans also could simply take a trip to the grocery store. While food retailers face their own cost challenges, they are positioning themselves to benefit from consumers trading down.

Supermarket giant Kroger says more and more people are cooking at home because it's cheaper than other dining options. It's also one of the companies investing in meal kits, along with Walmart Inc. and Inc's Whole Foods. Kroger acquired Home Chef in 2018. It now has annual sales of $1 billion.

Meal delivery and meal kit services do have one feature that could help them shield them from a pullback in inflation: the people who use them tend to be younger, wealthier, and therefore better equipped to deal with rising costs. With tighter budgets, some consumers may find they spend less when delivering meals than when going out.

Even so, as Walmart pointed out last month, in times of inflation, all income groups become more price-sensitive.

not-so-favorite recipes

Only baby boomers reported using meal packs to cook more in February

Note: 2,200 adults surveyed monthly

The demand for discretionary food will not stop. Hello, Fresh expects revenue to grow 20%-26% this year. In addition to Grubhub, rivals from Seamless's parent company Blue Apron Holdings Inc., and Just Eat Takeaway expect percentage growth rates in the mid-teens. Uber's food delivery business, which includes food, groceries, and liquor, was profitable for the first time in the three months to December 2021, based on adjusted EBITDA.

But soaring gasoline prices and stressed consumers mean life will be tougher. Investors are preparing for the worst. Shares have fallen at least 50% from their pandemic-driven highs.


Investors worried about the outlook for the discretionary food business

Companies that jumped on the bandwagon must now adapt to the new reality. One way is through integration. For meal kit suppliers, a larger scale means greater influence among farmers and food manufacturers. Hello, Fresh aims to keep its service relatively affordable. This probably means passing on less inflation than the headline rate. While that will take a toll on margins, as the No. 1 global meal-kit seller, the company's greater size should limit the impact.

DoorDash on Top

U.S. food delivery market has consolidated into three major players

The U.S. delivery market has already consolidated into three major players. But Just Eat Takeaway is looking at strategic options for Grubhub, which lost market share during the pandemic to DoorDash and Uber Eats. Bloomberg News reported in January that Just Eat had indicated to investors that it was open to a sale, but advisers also were pitching a private equity deal or a breakup. For all the delivery companies, there may be opportunities for deals that bolster their offerings in rapid grocery delivery or from entering a new sector entirely, such as delivering medicines.

Investors looking for cracks in the consumer economy could do worse than watch that midweek takeout meal.

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