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Online food platforms of all kinds must be killing it right now, right? Even with a captive audience of consumers in lockdown, larger services such as Deliveroo and Uber have announced poor results and plans for layoffs. Some think that new habits learned during the pandemic, such as avoiding crowded restaurants, will benefit online food delivery in the coming decade. But such theories are still unproven.
Despite shaky performance during the pandemic, online food delivery businesses have bright prospects. Investors are eager to throw money at a sector projected to be worth hundreds of billions in the next few years. Big tech and fancy gadgets are part of this growth prospect, but not all of it.
The basic idea of expanding the reach of those selling food is a powerful one. That place on the corner with great tacos could be competitive across cities and even regions. This was the basic idea of franchising and these new online platforms could take that success even further.
What’s surprising is just how many different companies and approaches there are. Here are the basic outlines of the growing online food delivery sector.
Drones and automobiles
Many are betting that new technology will be the deciding factor. Uber is the best example of this approach. It’s testing autonomous cars as fast as possible to replace a costly part of its infrastructure – drivers. Autonomous cars would also be useful for Uber’s taxi business, so that particular technology seems most important for its plans to finally turn a profit. For Uber Eats specifically, delivery drones are also in the works.
One big problem with this approach is cost. It takes loads of time and money to make the technology work. In the meantime, they are using investors’ money to support an unprofitable business and build a bright future that may never come. Competition to make autonomous vehicles is intense. It’s not clear that it makes sense for a taxi and food delivery company to build the technology themselves. Everyone from Apple to Huawei could win this race and eat Uber’s lunch. The Uber Eats commission for delivering that lunch would not cover the cost of the loss.
Another problem is that no one knows when this investment would pay off. Elon Musk claims that fully autonomous Teslas will be available this year. Others estimate that the technology won’t be ready for mass use for another 10-15 years. Much of this depends on regulation and public acceptance, both notoriously hard to predict. All that said, if the investment pays off, it could pay off big.
The plain hamburger approach
Wolt, a Finnish startup, has taken a different approach. Instead of building a huge tech infrastructure around food delivery, they have decided to focus on doing one thing extremely well – logistics. Wolt doesn’t operate worldwide like Uber Eats, but where it does operate, they offer lower fees than the competition. As you might guess, this lean approach does not include billion-dollar investments in artificially intelligent cars.
Gravity Payments has tried to simplify even further. The Seattle-based company started offering local restaurants bare-bones online services, just menus and order processing, no delivery included. It did this as an alternative to GrubHub, the largest US online food platform. GrubHub is known for its high commissions, offering everything from online menus to delivery and marketing. Gravity Payments hopes that a more a la carte approach will appeal to restaurants that feel like large tech companies are charging them too much. They would have to figure out other options for delivery, but that might prove to be a better option than paying high commissions, especially given the current crisis.
Around these basic approaches, there are many niches that competitors are rushing to fill. Dark kitchens are creating a buzz as they offer restaurants a way to focus solely on food. The “dark” part means there would be no dining room or even a place for customers to pick up orders. This allows for schedules and locations that wouldn’t be possible for normal restaurants. Many dark kitchen startups, such as Karma Kitchen in the UK, are focusing on the spaces themselves, selling kitchen space to those who want to make food for take out.
Another common strategy is to quickly move into adjacent markets. For example, GrubHub went from offering only online menus to also offering delivery and marketing services. Wolt has started experimenting with an online grocery store that offers delivery. Choco, a Berlin-based startup, went from connecting wholesalers with restaurants to selling directly to customers.
It’s the economy, stupid
The sector as a whole is not thriving during the pandemic because its real competition is buying your own groceries, at an old-school physical store, and cooking at home. Those who are lucky enough to still have disposable income have probably continued ordering take out from online food delivery platforms. But there is not enough of those people to keep all these new online platforms growing.
Even if some in the sector disappear completely, there is too much investment for it to change completely. Some trends like autonomous delivery could even accelerate as governments allow for more experimentation in desperate times. When the economy bounces back, we’ll all be able to watch the conclusion of the thrilling arms race to deliver you a tasty taco.