Industry Update
Opinion Article26 March 2020

Delivery services are getting a boost during the COVID-19 recession

COVID-19 stimulates one business, but it is not in the healthcare field

By Linchi Kwok, Associate Professor at The Collins College of Hospitality Management

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The impact of COVID-19 is devastating. Now, it is not a question of whether the coronavirus pandemic will cause a global economic downturn. The damage has made. It is about how much the economy will shrink.

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The numbers are depressing

The Dow's closed at 19,173 points last Friday, the lowest since December 2, 2016. A few weeks ago, in mid-February, the Dow's was still at its highest level, reaching close to 30,000 points.

There seems no hope for a quick rebound. More states are joining California to pause non-essential businesses and urge/order residents to stay home, adding more shutdowns and layoffs. Hotels, restaurants, airlines, and retailers, for example, warned they might have to lay off millions of workers unless they received hundreds of billions of dollars in emergency funds.

On Sunday, the highly-anticipated emergency economic rescue plan failed to move forward in a 47-to-47 vote in the Senate. In response, the Asian markets and the U.S. stock futures plunged on Monday.

By estimations, the U.S. economy might see the worst slowdown on record in upcoming months:

  • Oxford Economics predicts the U.S. economy will shrink at an annual rate of 12% in the second quarter of 2020.
  • JPMorgan expects a contraction of 14% in the second quarter.
  • Goldman Sachs warms a stunning 24% drop.

Restaurant delivery gets a boost

While states might take different measures as they order a "lockdown," residents are generally expected to follow the social distancing order to avoid close contact with others. Even though people are expected to work from home except for essential personnel, in most cases,
  • Residents may go to grocery stores, convenience stores, gas stations, and pharmacies.
  • Restaurants are closed for dine-in services but can deliver food to homes.
  • Residents may pick up take-out orders from restaurants.
  • Mail services, including USPS and FedEx, will continue operations.

Even before lockdown, the restaurant delivery business has already been doing well. Usually, restaurants partner with one or more of the four dominant food delivery companies, namely UberEats, Grubhub, Postmates, and DoorDash, for food delivery.

McDonald's, for example, added DoorDash as a new partner for food delivery in July last year. Before that, McDonald's had an exclusive partnership with UberEats, which serves about 64% of McDonald's U.S. stores. Delivery makes up about 2-3% of the chain's business, totally about $3 billion.

When restaurants are not allowed to offer dine-in services, they are making extra efforts to promote their take-out or delivery service. To many restaurateurs, that is really the only way to prevent them from closing down.

Meanwhile, not every resident is a good cook at home. Or they may simply want to try a variety of restaurant food during a lockdown. The restaurant delivery business gets a boost.

Grocery delivery too is doing better

Grocery stores are categorized as an essential business and will remain open during the pandemic lockdown. When everyone shops at the grocery stores, they become a dangerous place for the vulnerable. To cope with the coronavirus outbreak, many grocery stores have already cut store hours while adding designated hours for the seniors.

Today, some high-end grocery stores have already offered restaurant service to shoppers. People may find it easier to purchase restaurant-quality food at grocery stores now than before. To avoid human contact in a public place like grocery stores or restaurants, some residents may choose to have their groceries delivered to their homes.

Grocery stores have been making long-term efforts to encourage shoppers to place delivery orders. Amazon, for example, is making ways to provide fresh-food delivery service in its Whole Foods Market. Amazon Prime Pantry, which offers Prime members nonperishable grocery items and household essentials, shut down last week due to a sudden surge of the online orders.

Drome delivery has a bright future

While there are still concerns about drone delivery, the advantage of drone or robot delivery is that it minimizes human contact. Some people believe drones or robots can be used in fighting the coronavirus outbreak. In China, the agricultural drone markers see a rise in demand during the coronavirus outbreak because more drones are needed for delivery.

The future of delivery business

The coronavirus will probably change how people shop, travel, and work for years. People may likely rely more on delivery service. Such demand will help boost the delivery business even when everybody is having a tough time fighting the pandemic.

What do you think about the outlook of the delivery business? Are there other businesses that will have a positive outlook?

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Linchi Kwok

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