Consumers change food-delivery habits

BY PREETIKA RANA | UPDATED DEC 29, 2022 05:30 AM EST

Cost-conscious users of DoorDash and Uber Eats switch to in-store pickups, memberships and ordering fewer items

Consumers are changing their food-delivery habits amid economic concerns and as the industry evolves from the growth it saw during the pandemic.

Consumers continue to spend more onthe biggest food-delivery apps DoorDash Inc. and Uber Technologies Inc.’s Uber Eats, but growth is slowing and people are spending more cautiously, analysts and industry executives said. People are switching to in-store pickups, ordering fewer dishes and changing what they get delivered, they said.

“Most people have a budget," DoorDash Chief Financial Officer Prabir Adarkar said in an interview last month. Delivery “continues to remain part of their daily life. They are just adjusting their behavior," he said.

Some consumers are moving from expensive restaurants to fast food, he said, while others are cutting back on the number of items in a restaurant order.

Restaurant executives say some customers are picking up more of their food to avoid delivery fees.

“As pocketbooks get a little more strapped, you are seeing a lot more folks mobile ordering and grabbing their food and bringing it back home," Wendy’s Co. Chief Executive Todd Penegor said in an interview.

Food-delivery apps took off during the Covid-19 crisis. DoorDash and Uber Eats, which collectively control 90% of the U.S. food-delivery market, have continued to record sales expansion. But growth has cooled across the industry.

The number of orders placed on major food-delivery apps DoorDash, Uber Eats and Grubhub grew an average of 5% year-over-year in October and November, the slowest two-month growth since the pandemic, according to market research firm YipitData, which tracks emailed receipts. The amount of spending grew an average of 9% year-over-year in the same period, also at its slowest pace in more than two years.

Orders and spending on Grubhub, America’s third-largest food-delivery app, have been sliding. European owner Just Eat Takeaway.com NV has explored selling Grubhub since April.

DoorDash shares have slid 69% this year, close to double the 35% decline rate of the tech-heavy Nasdaq Composite Index. Just Eat shares are down around 58%, and shares of Uber—which also has a ride-share business—have fallen around 41%.

Most analysts predict continued growth at DoorDash and Uber Eats. Analyst Robert Mollins at Gordon Haskett Research Advisors said a decline in DoorDash’s website traffic so far this quarter suggests order volume will cool more than other analysts are anticipating.

“They are at the mercy of macroeconomic pressures for a little bit, especially with lower-income consumers," Mr. Mollins said.

A DoorDash spokesman said the company has consistently outperformed market expectations. Predictions based on app downloads, web visits and email receipts have “regularly failed at accurately estimating our growth," he said in an email.

DoorDash projected last month that spending would jump as much as 27% year-over-year in the current quarter. It doesn’t forecast orders.

DoorDash and Uber Eats are trying to attract more customers with holiday deals on their membership programs, which include discounts on food and delivery fees. Uber is letting people gift its annual membership at a 50% discount. Subscribers typically spend more, order more frequently and bring recurring revenue to apps.

The apps say cost-conscious consumers are increasingly subscribing to save money. Uber Eats said 40% of its U.S. orders so far in December came from subscribers, up from 27% in the same period a year earlier.

Grubhub has expanded an option to allow groups to bundle multiple orders to help people save on delivery charges.

The companies are cutting costs. DoorDash laid off around 1,250 employees late last month; Uber earlier this yearsaid it would cut marketing spending and pause hiring.

“Our business has been more resilient than other e-commerce companies, but we too are not immune to the external challenges, and growth has tapered vs our pandemic growth rates," DoorDash CEO Tony Xu wrote in a memo to staff apologizing for the layoffs.

Market-research firm NPD Group, which collects data from restaurant chains, said fast-food-chain delivery orders through apps and restaurants’ own channels fell 11% in the 12 months through November compared with the same period a year earlier. Pickup orders were the only means of to-go business that picked up during that period, NPD data shows.

Restaurant chains have said customers, particularly lower-income diners, are ordering cheaper or fewer items. Chains like Shake Shack Inc. have said they are losing some orders from lower-income customers and expect the trend to continue. Meanwhile, Tex-Mex chain Chuy’s Holdings, Inc. told investors that its to-go alcohol sales have come down.

“This is just part of the general move to getting back to behaviors pre-Covid," Chipotle Mexican Grill Inc. CEO Brian Niccol said in an interview.