Without wanting to dismiss ebay, Amazon has won the battle in ecommerce (in the West at least). A couple of big and bold bets have paid off for Bezos’ company and there are many reasons for Amazon’s dominance. We want to focus on only one here: building out its logistics footprint, from DCs to proprietary delivery (and perhaps drones soon). This has transformed Amazon’s 1P business and enabled Amazon to offer incredible fast and reliable delivery to its third party sellers through FBA.
Right now an epic battle is being waged within foodservice, with the digital revolution transforming the sector. Innovative online players are heavily disrupting the physical and immediate experience of eating out that supposedly would always need bricks and mortar restaurants.
Just as the online retail marketplaces enabled smaller niche sellers to connect with customers in their catchments and all across the world through the ebay or Amazon platforms, the delivery start ups are doing much the same for smaller restaurants. On joining one of the various platforms, growth trajectories for foodservice players are usually transformed.
But one major question has not been answered yet: which is actually the right model to offer foodservice delivery?
On the one side is the early adopter model, and this is where we see the ebay analogy. For simplicity’s sake let’s say this is represented by Just Eat. These businesses basically provide a platform that connects restaurateurs with customers, but do not get involved in the delivery process. The 3P foodservice players run their own delivery network. The online platform provider charges a transaction fee. Over time the model has evolved to include a number of other services from payment processing to consulting etc.
On the other side are the newcomers (this is where we see the Amazon analogy). Businesses include the likes of UberEats, Deliveroo, Glovo and actually Amazon itself through PrimeNow and its own take out and delivery service soon to be launched in the UK. These companies are providing a delivery network (usually cycle couriers) to high end restaurants to enable them to tap into the growth explosion of online takeaway orders.
Apart from generating income from providing customers to participating 3P restaurants, these websites then also charge a delivery fee. Arguably the nature of high end premium meal pricing means that the 3Ps can absorb this margin hit a lot better than the standard take away business from the local high street.
The question is now who will win this battle? Is the proven, by this we mean profitable, model of a Just Eat the right one? Or is the other approach (the Amazon approach) currently being tried by UberEats and others the better answer in the long term?
Of the second and as yet loss making approach we only know that it is very hard to make profitable and that it is burning through a lot of cash. The strategy, backed by venture capitalist funding, relies on investing heavily in building out a network and trying to become the pipe through which everything flows.
Actually Just Eat have been running a limited service in Copenhagen for years, where they provide delivery for high end premium restaurants. But financially this is not working out on a level that it would be scaled up, it is simply too capital intensive.
Then again – as a good friend of mine (Hi Tim) who works at a major logistics firm has pointed out – in Mumbai the second approach has worked for ages, without sophisticated routing algorithms and computers. An army of cycle couriers being directed by pen and paper are delivering meals to the offices in the Indian capital during lunch time.
In more developed markets, the second approach could probably become profitable in future too. But it will need patient backing and looks like another winner takes all sector to us, so investment has to be huge.
The other point to consider is technology shifts, such as delivery by drones, which some fast food chains have already tested, or driverless cars revolutionising delivery. Drones right now have the drawback of only delivering one meal per flight, so route and drop off densities will never be as good as with a courier.
While some may argue that foodservice is radically different from retail (and hence the ebay model will win out) others will point to the fact that especially a company like Amazon that has the logistics footprint already built up for its retail operations will be primed for success in foodservice too.
While this remains to be seen, what has become clear is that the online foodservice battle between the two different business models is on. And just as in ecommerce perhaps there will be enough space for both models in foodservice, with different use cases and shopper profiles.
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