Pandemic lockdowns and restrictions led to a drastic shift in consumer habits. Instead of dining out or shopping in stores, Americans increasingly turned to online delivery services to retrieve their meals and groceries. Now, even as restrictions ease, consumers are still utilizing these apps and paying for the convenience of having whatever they need delivered on demand.
This sudden change in consumer habits fueled a highly competitive industry. DoorDash (with 58% of the market share), Instacart (8%), Uber Eats (8%), and Grubhub (2%) are not the only players with a seat at the table. Now, convenience stores and grocers are jumping into the space as well. Investors may have doubts about the ultimate profitability of these companies, given that so many are operating on tight margins. Undoubtedly, the industry is booming, and new customers continue to sign up.
In fact, the food delivery market is expected to continue to grow by 11% until 2025. But just because there's demand doesn't mean there's profit. While customers enjoy the convenience of having meals from their favorite restaurants delivered right to their doors, at what price? Right now, many of these delivery services aren't charging enough to generate earnings. If they go the route of increasing delivery surcharges, consumers could potentially shift to other competitors.
The problem with many of these delivery services is that they rely heavily on third-party vendors, who can be unreliable, infuriate customers, plus they take a cut of the profits. In a promising development for the industry and investors, Philadelphia-based Gopuff, another online delivery service, has taken its business in a different direction precisely because of these issues.
While other delivery apps rely on third-party vendors for goods, Gopuff has almost 600 micro-fulfillment centers, according to published reports. That's up from 380 in 2020. These centers have food and household items. Since Gopuff has its fulfillment centers, drivers can complete orders around the clock without the same surge prices we see with other delivery services.
Gopuff has humble roots. It was founded in 2013 by two Drexel University students, Yakir Gola and Rafael Ilishayev. The two ran the company out of their Plymouth Voyager, delivering snacks and staples around campus to make college life a little more convenient. Fast forward to today, Gopuff has hundreds of locations in over 1,000 cities in the U.S. and Europe, and it employs 10,000 people.
This growing industry is not only beneficial for consumers. It's led to thousands of jobs. Gopuff drivers don't have to deal with the confusion and chaos that plague other delivery gigs since all orders are picked up from a local micro-fulfillment center. Essentially, there's less room for complication since no third parties are involved in the delivery process.
Another key differentiator here is the speed upstarts like Gopuff claim it delivers. Since the company relies on its network of local warehouses, it promises deliveries in as little as 10 minutes. Gopuff is way ahead of its competitors in this space, holding 70-75% of the 1P U.S. convenience market.
According to a Yipit report, Gopuff's U.S. sales jumped 53% in 2021 after a 173% surge in 2020, due in part to the coronavirus pandemic. Other companies like GrubHub and DoorDash are now starting to get into the instant delivery market, but Gopuff already has the infrastructure.
By branching into private-label goods and made-to-order meals in its mobile kitchens, Gopuff is becoming one of the more self-reliant players in this space. Additionally, after acquiring two separate alcohol retailers, the company wants to maintain its hold on the beer, wine, and alcohol delivery market. While the instant need economy grows to meet consumer demand, Gopuff is positioned to deliver on its mission.
Though currently a privately held company, Gopuff has positioned itself well in the sub-sector of a growing delivery market. Savvy investors often seek investment opportunities in the early growth stages to eventually exit through a public offering. Regardless of whether Gopuff is available for public investment, any investor interested in the growing rapid delivery market should perhaps get to know Gopuff.