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Delivery wars: Who will win the food delivery face-off?

Nicole Sinclair
Markets Correspondent

The competition in the on-demand food delivery space continues to heat up, as new entrants look to grab a larger piece of the overall market. Matt Maloney, co-founder and CEO of delivery powerhouse GrubHub (GRUB), which also owns Seamless, has placed the U.S. take-out/delivery food market size at $70 billion a year, with a still-small percentage online.

At a panel hosted by Yahoo Finance at the ICR Conference in Orlando, Fla. last week, top executives from some of the biggest food delivery players suggested there's enough room for multiple winners. Participants, including Noah Glass, founder and CEO of Olo, Dan Roarty of Groupon (GRPN)/OrderUp, Stan Chia of GrubHub, and Sunil Daluvoy, head of business development for Uber, discussed the rapid pace of innovation to cater to the growing desire for convenience.

Venture capitalists seem to agree. Funding in the food delivery space has surged, with $650 million raised in the food delivery space alone last year, according to Cowen & Co.

When it comes to on-demand food delivery, a big focal point has been marketplace models, or restaurant aggregators, where consumers can search for their restaurant or cuisine of choice. GrubHub, which went public in April 2014, is the largest player in the space, ending last quarter with 6.4 million active diners and averaging over 211,000 orders per day. However, as worries about competition have abounded, the stock has declined about 40% since its IPO.

Following GrubHub's public debut, Groupon identified restaurant food delivery as its next avenue for growth, following moves by other local Internet players like Yelp (YELP), which acquired Eat24. Last July, Groupon acquired online and mobile food-ordering service OrderUp -- which services about 40 markets in the U.S, mostly outside top metropolitcan areas. While this deal reflects Groupon's broader strategy shift from a failing "push" model -- where it promoted daily deals -- to a "pull" model, driven by a more traditional e-commerce demand model, it remains to be seen whether this can move the needle for the company.

GrubHub and OrderUp deliveries are generally carried about by restaurant staff, though both have started to develop their own couriers. Meanwhile, vertically-integrated competitors like Postmates and Doordash -- using solely their own couriers -- have also disrupted the space. 

Outside of marketplaces, technology for ordering from individual restuarants is still nascent. While large pizza chains like Domino's (DPZ) have seen success with direct orders, many brands and individual restaurants have struggled to capture delivery demand.

Uber has tried to take advantage of this gap. UberRush, part of Uber's effort to extend beyond its successful ride-hailing platform, delivers food and other retail items from local businesses. That service has so far launched in New York, Chicago and San Francisco. On Tuesday, it announced the roll-out of its partnership with ChowNow. UberRush is an extension beyond Uber's initial meal roll-out, UberEats, which launched in 2014 in select cities with limited menus during lunch time, though plans to expand the service are being tested in Toronto.

Privately-held Olo has gotten involved on the software end and is trying to change the way people order from their favorite restaurant, with a focus on brand names and chains. The company, which grew in popularity with its Skip the Line feature that allowed consumers to order ahead, announced a new service, called Dispatch, in September, which provides software to synchronize orders from the kitchen to the delivery courier to the restaurant guest.

 

While the specific winners remain to be seen, on-demand delivery -- starting with food and expanding to other services -- is an important story in the future of the restaurant space.