Food delivery apps are primarily known for allowing users to order and eat their favorite restaurant dishes from their own couches and dining rooms, but since Americans tend to spend more money on groceries than meals out, food-delivery companies have begun reaching into the established grocery delivery market.
According to the U.S. Department of Labor Department, U.S. consumers allot more in their budget for groceries than restaurants, so companies like Doordash and Postmates seek to expand their reach into more grocery markets.
Postmates just announced a partnership with Walgreens (NASDAQ: WBA) and Duane Read stores – all 174 of them – in Manhattan and Brooklyn. Walgreens customers won't have to pay delivery fees if they subscribe monthly to Postmates Unlimited for $9.99. Postmates hopes to eventually expand that partnership nationwide.
"In the last year, orders from convenience and drugstores have increased by 68%," said Craig Whitmer, vice president of merchant business development at Postmates. "By collaborating with Walgreens, we are able to provide our customers with even more convenience when it comes to everyday items that they need now."
This is not Postmates' first foray into grocery delivery. Its first grocery partnership occurred in 2015 with 7-Eleven, the largest convenience-store chain. In 2018, Walmart Inc (NYSE: WMT) partnered with both Postmates and Doordash in an attempt to compete with Whole Foods delivery-partnership with Amazon Prime Now.
The expansion beyond restaurants continues in 2019 with Walgreens.
Grocery delivery is thick with competition. In August, Doordash signed an agreement with e-commerce company Mercato Inc. to ensure same-day delivery from 750 grocers in 22 states. Uber Eats (NYSE: UBER) is currently testing grocery delivery in Australia, while negotiating with grocery chains in Europe and North America.
Customers are willing to pay a little extra for groceries if the delivery gets to their door without hiccups, but because grocery deliveries tend to be a more cumbersome affair and drivers have longer wait times at stores, many customers are opting out of grocery delivery and going to the store themselves.
"It's actually hard to do groceries well," Instacart's chief business officer, Nilam Ganenthiran, said.
Instacart, an online grocery platform that specializes in grocery pickup and delivery, has been around since 2012 and works with 300 grocery chains. In 2018, it was valued at $7.8 billion.
Food delivery apps like Postmates and Doordash will be in competition with established grocery services like Instacart and Shipt (owned by Target Corporation (NYSE: TGT)), and also in-house pickup and delivery services. But there are opportunities if the delivery apps can compete.
Customers with disabilities or young families find the logistics of grocery shopping time-consuming and daunting. Marinda Cauley, a 27-year-old Chattanooga, Tennessee, public library employee with muscular dystrophy, uses Walmart's grocery pickup and delivery services every Saturday.
"I used Shipt for a while, but Walmart does it for less," Cauley said. "It has made shopping a lot easier for me without having to get out of my car and go around the store. With Shipt, the people delivering actually came inside and helped put groceries away."
Even though food and grocery delivery is in high-demand, analysts still can't be sure whether the business model is profitable. A look at Uber Eats unit economics by investment firm Cowen revealed that it would take five years for this fast-growing company to generate a profit.
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