Grocery delivery stocks hit the US stock market - The Average Joe

    Grocery delivery stocks hit the US stock market

    Kevin Roche — Analyst

    July 1, 2021

    grocery delivery stocks

    July 1, 2021

    Investors are hungry and ready to feast on two new grocery delivery stocks hitting the US market. On June 29, Chinese grocery startups, DingDong (NYSE:DDL) and MissFresh (NASDAQ:MF), went public on the US stock market. 

    Grocery chains have a problem on their hands

    Due to the pandemic lockdowns, the online grocery market grew 81% to $55.5b in 2020 – with more growth expected this year. Forecasts for the end of 2021 predict:

    • In the US – Over 10% of groceries to be ordered online, double 2019 levels.
    • In China – Up to 28% of groceries will be online, compared to 10% in 2019.

    Online-order and in-store pickup models use outdated, unprofitable models of using people to hand-pick items – which leads to a -5% operating margin for online grocers.

    Enter: Grocery delivery services, which are trying various ways to make the business work. Some are setting up automated warehouses, while others are retrofitting stores with e-commerce centers — but all are spending too much cash figuring it out.

    A tale of two grocery delivery stocks

    So what happened after the two biggest Chinese grocery startups went public Tuesday? Since going public:

    • DingDong tripled its 2020 sales and is up nearly 50%.
    • MissFresh’s sales slowed last quarter and is down 33%.

    Both companies offer delivery service in under an hour using mini-warehouses located a little outside the cities they operate in. But setting these up requires expensive upfront investment and both DingDong and MissFresh have burned through large amounts of cash with no signs of breaking even.

    On top of this, the Chinese Grocery industry is already highly competitive with tech giants like Alibaba, JD, Pinduoduo and Tencent investing in the online grocery space. It’s a big and fast-growing industry — and everyone wants in.

    Investors: An order of profitability? No thanks.

    The economics of online grocery delivery stocks is similar to ride-hailing/food delivery apps like Uber and DoorDash — both of which had massive losses. What’s eating their revenue? The cost of paying drivers. Self-driving vehicles would solve this problem — but don’t expect this solution to be delivered any time soon.

    Watch out: US-based grocery delivery app Instacart is expected to hit the US stock market later this year.

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