Over the past half a decade or so, internet enabled food delivery services have exploded all over the world and more so in North America, the hub of technological innovation.
The industry is growing at a breakneck pace as more and more people prefer to order food with a few taps on their phone, but the competition has grown intense between the major players in the industry.
U.S. Spent on Food Deliver
As per reports, people in the United States spent as much as $800 billion on food delivery in 2017 and that figure is going to go up at the rate of 5% each year, which could give the entire market valuation of $1 trillion in a few years. However, the worry remains whether the intense competition between the main players eventually leads to the destruction of capital.
Much of the potential $1 trillion markets is going to be taken up by internet-enabled food delivery and some of the biggest companies in that particular space are gaining market share fast. The biggest names in the industry include UberEats (UBER), DoorDash (private), and GrubHub (GRUB) among others.
The bookings made through these internet enabled services have increased at an impressive pace and that is demonstrated by the valuations commanded by these companies. For instance, DoorDash is now valued at $12.6 billion following its latest round of funding, but a year ago it was valued at $1.4 billion.
Other companies are staying nimble while also entering a rapid expansion phase. Canadian-based ParcelPal (PKG.C) (PTNYF), for instance, has already completed millions of deliveries and counting. Yet, the company only has a market cap just under $14 million! If you talk about valuations here, a company doing this kind of volume may be considered far below the bloated valuations of some of these other companies.
New Options Beyond Food
But it also comes down to innovation as well. While competition continues to grow with food delivery, Canada’s market has opened up an entirely new niche. ParcelPal is once again staying ahead of this wave.
The company entered into a definitive agreement for partial acquisition and exclusive partnership with marijuana seed-to-sale provider and online ordering system, TokeIt Technologies, Inc.
A cannabis focus will give all TokeIt-engaged licensed dispensaries the ability to offer their consumers the opportunity to order marijuana directly through the ParcelPal or TokeIt applications and have it delivered in an hour or less. This partnership offers ParcelPal access to thousands of customers in neighborhoods throughout Vancouver.
The deal gives ParcelPal access to more than 15,000 customers on the TokeIt platform and nearly 50 dispensaries partnered with TokeIt with which ParcelPal currently operates. According to the company, the average dispensary on the TokeIt Platform produces more than $250,000 per month.
It’s also worth mentioning that Canadian politician Parm Gill joined its advisory board of directors.
“Mr. Gill’s knowledge on economic issues and private sector experience will be an asset for ParcelPal moving forward. Mr. Gill has changed criminal law for the better and is always looking for the betterment of safety for all Canadians.”ParcelPal’s President and CEO, Kelly Abbott
Gill is a current member of Ontario’s Provincial Parliament for Milton, having been elected in 2018. Previously, from 2011 to 2015, he served as a federal member of parliament for Brampton-Springdale.
Although investors are happy to plow their money into the sector, the question remains whether the companies are actually earning much to justify these valuations. It may be prudent to stop, look, and listen right now to find undervalued companies.
This isn’t to say that this means to stay on the sidelines. However, we’ve all learned that finding undervalued opportunities early on could equate to major windfalls later on. This is considering that DoorDash alone is supposedly valued at more than $1 billion.
According to analysts, the total value of food order made through these apps could be $150 billion by 2024. But it remains to be seen whether the companies in the industry can actually earn enough to placate their investors.
For instance, Uber has gone on record stating that the ‘take rate’ has been on a steady decline over the years. This refers to the money that actually goes to the company after all payments are made. This includes those to the eatery.
As a matter of fact, UberEats’ revenue from each booking stood at 10% of each booking last year. Obviously, if that continues then the different companies will probably have $15 billion worth of revenue to compete for. At the end of the day, innovation will likely be the determining factor. With different ways that on-demand delivery can be implemented, it will be good to see who begins to increase exposure to alternatives to food delivery alone.