The way the world eats has undergone a significant transformation. Less than two decades ago, getting restaurant-quality meals delivered was largely limited to options like pizza and Chinese food. Fast forward to today, and ordering online food delivery has exploded into a global market valued at over $150 billion, more than tripling in size since 2017. In the United States alone, this market has more than doubled during the COVID-19 pandemic, building upon a solid historical growth rate of 8 percent.
The surge in popularity of user-friendly apps and sophisticated driver networks, combined with evolving consumer expectations, has propelled ready-to-eat food delivery into a dominant category within the food industry. The lockdowns and social distancing measures implemented during the pandemic’s early stages provided an unprecedented boost to this sector, with delivery services becoming a critical lifeline for restaurants facing immense challenges. Looking ahead, ordering online food delivery is firmly positioned to remain a permanent and integral part of the dining landscape.
Despite the continuous expansion of the food delivery ecosystem, its economic structure is still in a state of flux. Factors such as brand recognition, strategic real estate, operational efficiency, the breadth of menu offerings, and shifting consumer habits will be crucial in determining which stakeholders emerge as winners and losers as the industry matures. Potential regulatory changes, including possible adjustments to driver compensation models, will also play a significant role in reshaping the competitive dynamics. Importantly, while the industry has witnessed explosive growth during the global pandemic, the vast majority of delivery platforms have yet to achieve profitability. As Christopher Payne, Chief Operating Officer of DoorDash, recently noted in the Wall Street Journal, “This is a cost-intensive business that is low-margin and scale driven.”
Despite these economic realities, substantial investments continue to flow into the sector, evidenced by recent funding rounds for companies like Wolt ($530 million in January 2021), REEF Technology ($700 million in November 2020), and Rebel Foods ($26.5 million in July 2020). Mergers and acquisitions, such as Uber’s acquisition of Postmates ($2.65 billion in December 2020) and Just Eat Takeaway’s acquisition of Grubhub ($7.3 billion in June 2021), further illustrate the industry’s dynamism. The recent IPOs of DoorDash (December 2020) and Deliveroo (March 2021) underscore both the excitement and the inherent uncertainties that still characterize this market. As the landscape continues to evolve in the wake of the global pandemic, a complex network of players—including delivery platforms, restaurants, drivers, consumers, and technology providers—face new challenges, opportunities, and critical decision points. Furthermore, the rise of rapid delivery and quick-commerce platforms, such as Getir ($550 million in June 2021) and JOKR ($170 million in July 2021), which have also secured significant funding, introduces a new layer of competition in the battle for consumers’ food spending.
Market Size and Growth of Food Delivery Services
The most established food delivery markets globally – including Australia, Canada, the United Kingdom, and the United States – experienced remarkable growth between 2018 and 2019, ranging from a twofold increase in the US market to a fourfold surge in Australia. This exponential growth trend accelerated in 2020 and early 2021, resulting in market sizes that are now four to seven times larger than they were in 2018.
Prior to the pandemic’s devastating impact on numerous establishments, the US restaurant industry was growing at a steady pace of 3 to 4 percent annually. Notably, delivery sales were expanding at roughly twice that rate, between 7 and 8 percent each year. While population growth played a role, the primary driver of this increase was a shift in consumer spending away from grocery stores, with Millennials and Gen Z increasingly favoring the convenience of prepared meals obtained through Order Online Food Delivery services.
This preference for convenience has become even more pronounced during the pandemic. Between March and May 2020, coinciding with the most stringent lockdown measures in Europe and the United States, the food delivery market experienced a dramatic spike. Crucially, this growth trajectory has been sustained, with continued expansion throughout 2020 and into 2021.
As we progress into the later part of 2021, with vaccination efforts enabling reopenings in many cities even amidst the spread of the Delta variant, the long-term consequences of the 2020 market surge are becoming clearer. This includes understanding the extent to which eating habits formed during the initial phases of the pandemic will persist and shape the future of online food delivery.
Key Battlegrounds in the Expanding Delivery Market
Historically, restaurants managed the limited food delivery services that existed directly. Today, a complex ecosystem of players is involved in facilitating online food delivery.
The United States stands out as one of the most intricate food delivery markets, with four major players—DoorDash, Grubhub, Postmates, and Uber Eats—competing for market share, each holding a dominant position in specific urban areas. As of May 2021, DoorDash led in San Jose (77 percent market share), Houston (56 percent), Philadelphia (51 percent), and San Antonio (51 percent). Uber’s acquisition of Postmates in 2020 aimed to create a more level playing field, but its impact was limited. Combined, Uber Eats and Postmates held the largest market share in Los Angeles (50 percent) and New York City (41 percent) as of May 2021. These market shares are constantly shifting as platforms continue to compete fiercely for local dominance in the order online food delivery space.
As the online food delivery business continues its expansion, several critical factors, ranging from market dynamics to legal and regulatory considerations, will determine the success levels of the various participants.
- Intensified Geographic Competition: Competition among delivery platforms for geographic dominance will be a defining battleground in the coming years. Rival platforms will continue to aggressively compete for customers, restaurant partnerships, and drivers within each local market. This intense competition may lead to further consolidation within the industry over time. This battleground is also expanding beyond traditional restaurants as platforms broaden their service offerings to include various verticals. Adding to the competitive landscape are specialized delivery apps focusing on niche customer segments or specific cuisines—like Slice, for pizza orders, and HungryPanda, catering to Chinese food—which have also gained traction in recent years by focusing on specific order online food delivery niches.
- Restaurant Commission Rate Disputes: Commission rates charged to restaurants remain a significant point of contention. Delivery platforms generate revenue through five primary streams: restaurant commission fees (typically ranging from 15 to 30 percent of the meal price), customer delivery fees (usually $2 to $5 per order), customer-service fees (surcharges up to 15 percent), in-app advertising, and driver tips. Restaurant commissions are particularly controversial. During the pandemic, numerous local and state governments in the United States implemented caps on these commissions, with some considering making these caps permanent. In areas where these caps are eventually lifted, traditional restaurants will again face pressure from commission fees, especially as platforms have grown larger and more influential. However, platforms are experimenting with offering varied commission rates and terms to restaurants, acknowledging potential pushback. The ultimate resolution of this issue remains uncertain. The proliferation of “dark kitchens” or ghost kitchens, which are delivery-only restaurants without a customer-facing storefront, and other delivery-centric restaurant models could further exacerbate the pressure on traditional restaurants. These lower-overhead businesses can often afford higher platform commissions, leading to their preferential placement within platform apps. They may also be able to reduce service fees for customers. Consequently, a larger share of online food delivery volume is likely to shift towards dark kitchens, potentially forcing traditional restaurants to reconsider their participation in the delivery market altogether. Conversely, dark kitchens also present an opportunity for traditional restaurants to expand their reach by establishing delivery-only locations to supplement their dine-in operations.
The rise of dark kitchens may capture a larger share of the order online food delivery market, while some traditional restaurants may opt out of delivery services altogether.
- Driver Compensation and Benefits: Driver compensation and benefits are a persistently contentious issue. Delivery platforms rely on the gig economy model, which provides flexibility through on-demand drivers. However, the gig economy model is under scrutiny amid ongoing debates about whether gig workers, particularly drivers, should be classified as employees. Changes in how independent contractors are compensated and what benefits they receive could significantly disrupt the economic balance for all stakeholders in the order online food delivery market.
Evolving Economics for Stakeholders in Food Delivery
As consumer preferences and regulations evolve, and as emerging technologies continue to reshape the industry, the long-term economics of online food delivery are likely to differ significantly from the current landscape. To better understand these potential shifts, it’s crucial to examine the economic and cultural forces impacting restaurants, delivery platforms, drivers, and customers.
Restaurants
Historically, restaurants have assessed their profitability based on three primary cost categories: food (typically 28 to 32 percent of total costs), labor (28 to 32 percent), and occupancy or real estate (22 to 29 percent). Under this traditional unit economics model, a restaurant aims for total costs between 78 and 93 percent, resulting in a profit margin of 7 to 22 percent (franchise restaurants also incur franchise fees).
In the past, restaurant delivery was viewed as an extension of the dine-in service, essentially an “extra table” serviced by a driver instead of a waiter. Restaurants typically paid drivers minimum wage and drivers earned tips, usually delivering multiple orders within a limited radius. Delivery was intended to enhance restaurant revenue by optimizing kitchen utilization and generating a reasonable profit margin.
During the COVID-19 pandemic, as restaurants faced existential threats due to lockdowns and dining restrictions, online food delivery became a crucial lifeline. Many restaurants utilizing online platforms experienced growth in delivery revenue throughout 2020. Despite this revenue increase, overall restaurant profits generally declined, sometimes even resulting in negative margins. While pandemic-related dining restrictions exacerbated this trend, the disconnect between delivery-driven revenue growth and profit decline was already an underlying issue.
Realistically, traditional restaurant profit margins of 7 to 22 percent are insufficient to sustainably cover delivery platform commissions, which range from 15 to 30 percent, especially as delivery orders become a larger proportion of a restaurant’s business. This commission structure is less problematic when in-house diners, who often order higher-margin items like alcoholic beverages, contribute to covering occupancy and labor costs. However, when in-house dining diminishes, the business model becomes significantly challenged.
With fewer dine-in customers, delivery services must cover a greater share of restaurants’ fixed operating expenses. If order online food delivery volume expands to the point where it necessitates additional kitchen space, fixed costs could further increase.
While increasing total sales through delivery might appear to be a strategy to dilute fixed costs, restaurants that overemphasize delivery could risk cannibalizing their dine-in business and compromising the overall dining experience. This could ultimately reduce the customer base over which fixed costs are spread.
Furthermore, a surge in delivery business can strain restaurant operations, requiring increased workload for cooks, managers, and support staff. Restaurants will likely need to implement new processes and systems to efficiently handle high volumes of order online food delivery orders. Ultimately, restaurants need to carefully balance delivery services with other aspects of their business to ensure a positive net impact. As illustrated in Exhibit 4, a typical restaurant would need to significantly increase total sales to maintain its pre-delivery profit margin when incorporating delivery services.
The pizza industry provides insights into how the broader restaurant sector might adapt to the delivery challenge. Most pizza restaurants have chosen to prioritize either dine-in or delivery and have structured their business models accordingly. It’s conceivable that restaurants in other segments might also specialize in their service offerings, with those focused on dine-in experiences potentially opting out of the order online food delivery market due to margin pressures. This could leave dark kitchens and other delivery-focused businesses to compete for delivery volume.
Restaurants that choose to serve both dine-in and delivery customers will need to adjust their pricing strategies to account for the added costs of delivery. Those prioritizing consistent pricing might raise overall menu prices, effectively having dine-in and pick-up customers subsidize delivery. Alternatively, restaurants could create separate, higher-priced delivery menus, as some have already done. As Chipotle Mexican Grill’s CFO, Jack Hartung, stated in early February, following a 13 percent price increase on delivery apps: “It’s no surprise that delivery comes with an added cost. Our belief has been that’s a premium experience from a convenience standpoint. We want to make sure that channel covers the cost.”
Delivery Platforms
Delivery platforms are facing significant pressure. Despite experiencing explosive growth in order online food delivery, they are struggling to achieve profitability. And, as the Wall Street Journal has reported, profitability is not expected for several years for many of these companies. Nevertheless, opportunities for upside exist as platforms explore new revenue streams and manage costs.
Platform economics are currently heavily influenced by fees and commissions paid by restaurants and customers, as well as delivery costs. Analysis indicates an average contribution margin of around 3 percent, or approximately $1.20 per average order.
Delivery costs are unlikely to decrease substantially, as last-mile delivery economics remain challenging across industries, especially with rising consumer expectations for speed (typically 30 minutes or less). However, advancements in technology, such as autonomous delivery robots, improved routing algorithms, and the ability to batch or “stack” multiple orders per delivery, could offer some cost relief.
Variable marketing costs, such as advertising, are another significant factor. With multiple high-profile players competing in the market and restaurants fragmented across platforms, the current cost of customer acquisition is becoming unsustainable. Industry consolidation through acquisitions is expected to help reduce these costs. Consolidation will also give platforms greater influence over restaurant visibility within their apps, likely leading to further concentration of volume towards leading restaurant brands that are well-positioned for the digital marketplace of order online food delivery.
Delivery platforms are unlikely to see substantial margin growth within the restaurant sector itself, given the financial pressures restaurants are already facing and increasing scrutiny of platform commissions. However, the potential for growth in consumer demand for order online food delivery remains largely untapped. By capitalizing on this vast potential demand, platforms have the opportunity to increase overall volume and achieve profitability at scale, provided they can effectively address the logistical and operational challenges of last-mile delivery.
Delivery platforms have the potential to achieve significant profitability by scaling operations and overcoming last-mile delivery challenges in the order online food delivery market.
Many platforms are already expanding the use cases for their logistics networks. This trend is expected to accelerate, with platforms improving their economic profiles by delivering other, higher-margin products in categories such as alcohol, pharmaceuticals, and groceries. These new categories attract new customer segments, increase average order values, and enable order stacking, maximizing delivery efficiency.
This expansion also positions platforms as service providers to businesses beyond restaurants. DoorDash, for instance, already provides delivery services for companies like Petco, Macy’s, and Walmart.
Drivers
For delivery drivers, completing a sufficient number of deliveries per hour is crucial for achieving favorable economics. Time is a major cost factor in single-point deliveries, with the physical handoff to the customer typically taking one to five minutes. As order online food delivery expands into less densely populated areas, including suburban and rural locations, the service becomes more expensive for both restaurants and drivers.
As previously discussed, significant changes in how independent contractor drivers are compensated would have far-reaching consequences throughout the online food delivery ecosystem. Absent such changes, pay per delivery is likely to continue declining in real terms as platforms enhance efficiency and facilitate more deliveries per hour. However, with substantial volume growth and advancements in platform logistics technology, it’s conceivable that overall hourly pay for drivers could slightly increase over time as they complete more deliveries per hour.
Customers
Customers driving the surge in order online food delivery are paying a significant premium over the base cost of their average meal. A typical fast-casual meal priced at around $25 on a delivery platform can cost a customer approximately $35 in total, excluding taxes. This total cost includes delivery fees ($2 to $5), driver tips (10 to 20 percent), and platform service fees (around $3, often partially offset by discounts). Customers do not directly see the service commissions restaurants pay to platforms. Some restaurants increase delivery menu prices to cover these commissions, while others maintain consistent pricing, distributing the markup across all customers.
Despite customers paying a 40 percent premium on their meal cost, restaurants themselves receive only about 55 percent of the total customer spending on order online food delivery.
Throughout the pandemic, limited dining options led many consumers to rely on delivery and accept the associated premium. However, as dining options increase, particularly for vaccinated individuals, customers will likely become more demanding of online food delivery services, prioritizing:
- Delivery speed, with sub-30-minute delivery becoming a key differentiator.
- Food quality, expecting restaurant-quality meals even after delivery.
- Order accuracy and completeness, for both standard items and special requests.
- Variety in cuisines and meal options available for order online food delivery.
High population density and larger order values enhance the efficiency of order online food delivery. As delivery services expand to reach more diverse customer segments, including those with lower meal spending and those in sparsely populated areas, platforms and restaurants must find ways to serve these segments economically.
Going forward, consumers are likely to see restaurant meal costs increase, either through explicit fees or menu price markups, to cover restaurant commissions and driver pay in the order online food delivery ecosystem. These fees and markups may eventually decrease as restaurants and platforms achieve greater efficiency at scale.
In a move towards increased customer retention and consumer benefit, many delivery platforms are now offering monthly subscription services, mirroring models like Amazon Prime. Subscription services like DoorDash’s DashPass and Uber Eats’ Eats Pass offer unlimited free deliveries for a monthly fee. These subscriptions reduce costs for frequent order online food delivery users and enhance customer loyalty, making customer acquisition more valuable for platforms.
Emerging Opportunities and Untapped Revenue Streams in Food Delivery
As eating habits continue to evolve, new revenue opportunities are emerging in the order online food delivery market. Capitalizing on these opportunities will require innovation and a willingness to adapt operating models. Promising revenue models include:
Menu Engineering
Restaurants can leverage data from delivery platforms to create customized menus for individual consumers. This personalization enhances opportunistic sales, increases average order values, and improves conversion rates. End-to-end customization ensures that customer preferences, such as dietary restrictions, are considered for every meal, and that food recommendations are more relevant and effective for order online food delivery.
Dark Kitchens
Dark kitchens, also known as ghost kitchens, focus solely on preparing and marketing delivery orders without a physical storefront. They separate delivery operations from the “front of house,” allowing restaurants to expand and experiment with minimal financial risk. Companies like REEF Technology, with its Neighborhood Kitchens concept, offer established and emerging restaurants access to dark kitchen infrastructure and services, facilitating expansion in the order online food delivery space.
Virtual Brands
Virtual brands are incremental menu offerings designed to target new meal occasions or cuisine types. They enhance a restaurant’s online presence and attract different market segments within the order online food delivery market. Virtual brands can attract new customers, improve labor efficiency, and optimize order stacking for delivery platforms. YouTuber Jimmy Donaldson (MrBeast) successfully launched MrBeast Burger, a virtual brand whose menu items are prepared in existing restaurant kitchens across the US and UK. Man vs Fries, initially a Bay Area pop-up, has expanded its virtual brand to multiple cities, leveraging the order online food delivery model.
Brand Spin-offs
Restaurants with strong brand loyalty can leverage their brand equity to create spin-off concepts targeting new demographics or meal occasions. Au Cheval, a popular Chicago diner known for its cheeseburgers, launched Small Cheval, offering a simplified menu. Digital order online food delivery enhances the potential for brand leveraging, as consumers seek out trusted brands regardless of location.
Consolidation Points
Route optimization for multi-point pickups and drop-offs is a major cost factor in last-mile delivery. Partnerships between nearby restaurants can create online “food hall”-like marketplaces, improving customer experience and offering greater variety for order online food delivery. Toronto’s Kitchen Hub Food Hall allows customers to place a single order combining items from multiple restaurants, catering to diverse preferences within a household.
Virtual Concierge
Drivers and consumers can benefit from consolidating multiple deliveries through virtual concierge services. These services enable drivers to combine errands, such as picking up dry cleaning or groceries along with restaurant orders. They can also stack orders from multiple customers in the same building or neighborhood, improving efficiency in order online food delivery. Rappi, based in Bogotá, Colombia, is a multi-vertical delivery app combining food delivery with other errands, while Uber Eats and DoorDash are exploring order stacking for their food offerings.
Tiny Restaurants
Restaurants may need to rethink their design approach in light of the growing delivery market. Burger King, for example, unveiled plans for restaurants 60 percent smaller than traditional locations, incorporating features like “pickup lockers” and dedicated curbside delivery parking to accommodate the surge in order online food delivery and takeout.
Innovation in Customer Attraction
The evolving order online food delivery ecosystem rewards creativity in customer acquisition. One potential innovation is combining dining and entertainment, such as “taste your favorite cooking shows at home” offerings, where meals are delivered so viewers can dine “alongside” celebrity chefs. Rachael Ray partnered with REEF and Uber Eats in 2019 to launch her cookbook, offering fans in select cities the opportunity to sample her recipes via order online food delivery.
Conclusion: The Future of Food Delivery
While the COVID-19 pandemic has severely impacted many restaurants, the surge in technology-driven order online food delivery has been a significant positive development for the industry and consumers alike. For customers staying at home, the convenience of ordering hot meals with a few clicks has been transformative.
Looking ahead, the order online food delivery market is poised for continued growth and evolution as the “next normal” emerges. Restaurants will need to adapt their strategies, carefully consider platform partnerships, and experiment with innovative business models. Delivery platforms must optimize customer data usage to enhance user experience and find creative ways to reduce delivery costs. As investors continue to invest in delivery platforms, dark kitchens, virtual brands, and related infrastructure, companies will face increasing pressure to meet investor expectations.
As these shifts in how the world eats take hold, the implications for both established and new businesses, as well as for consumers, will continue to unfold. Unlocking the opportunities inherent in these changes requires a deep understanding of the market’s trajectory and the powerful forces shaping the future of order online food delivery.
