COVID-19

Food delivery apps may soon see even more consolidation

Meghan McCarty Carino May 13, 2020
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There are reports that Uber has made an offer to buy and take over Grubhub. Cindy Ord/Getty Images
COVID-19

Food delivery apps may soon see even more consolidation

Meghan McCarty Carino May 13, 2020
Heard on:
There are reports that Uber has made an offer to buy and take over Grubhub. Cindy Ord/Getty Images
HTML EMBED:
COPY

The food delivery business has been booming as stay-at- home orders keep people inside and restaurant dining rooms closed.

But what was once a big, crowded marketplace of third-party apps offering the service has been shrinking. Caviar merged with DoorDash, there have been regional and international mergers of smaller apps and there are now reports that Uber is looking to buy competitor Grubhub.

That would make the company by far the largest player in a fast-consolidating market.

Consolidation reduces competition, and when competition goes down, businesses can usually charge more, says Alex Susskind, who teaches food and beverage management at Cornell University’s School of Hotel Administration.

“Because they control more of the market, they can dictate the terms in a stronger way,” Susskind said.

That’s not just for consumers, but also for the restaurants that rely on the apps for business, too. Use of third-party delivery services has about doubled as a share of restaurant business since the shutdowns began, says restaurant industry consultant Trevor Boomstra at AlixPartners.

Many restaurants have been complaining about the high fees and commissions the apps charge on already low-margin sales, and Boomstra says consolidation could make things worse.

“What limited negotiating power a lot of the independent restaurants have will be even smaller,” Boomstra said.

But for consumers, he adds, having a few big apps could make the services more widely available. The big apps could also use customer data more efficiently, which could be a good thing or a bad thing depending how you look at it.

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