The Food Delivery Wars: A Little Bit Of History Repeating?

It is surprisingly easy to look down on the reasoning people used in the past while making the exact same errors in judgement, with minor modern upgrades.

Consider, for example, prospecting — as in literal prospecting, not digital mining for bitcoin, but actually hunting for gold and other precious metals in the ground. These days it is not exactly a mainstream profession. If the Discovery Channel is to be believed, it is more or less for quirky eccentrics who don’t mind risking death while vacuuming the bottom of the Bering Sea for amounts of money comparable to the salary of a poorly paid middle manager.  

But in the 19th century, prospecting had a certain amount of professional street cred. While never quite attaining the mainstream parent-pleasing credentials of becoming a doctor or lawyer, for about a 50-year run, prospecting had a run of respectability in the United States.

The contemporary thought was that while it might not be for everyone, prospecting offered the opportunity for anyone to make their big strike as long as they came to the table with a pick + a pan + a mining claiming + some gumption.  

Flash forward 130 years or so and we know that this line of thought was actually pretty disastrous for many, since far more people lost their fortunes prospecting than the number who made them. But before we chuckle about the silly ideas people in the 19th century had about what it took to make it in the world, it seems at least worth pausing and wondering if we really think all that differently today.  

Is it possible we are a lot more like our forebearers than we might want to take credit for?

Consider food delivery on-demand. In the last several years, there has been a persistent belief among investors and industry watchers that apps + cars + drivers + energy = billion-dollar delivery business.  

After all, Uber did it, right?

And Uber — with its stratospheric almost $50 billion valuation and seemingly unending reserves of venture funding surely did do it — and almost out of nowhere. Five years ago only a handful of early adopters had any idea what Uber was.    

But the 19th century had an Uber, too, and his name is George Hearst. Hearst really lived the prospector’s Horatio Alger Story. He was a self-taught mining expert Missourian who ran to California to follow the Gold Rush.

He didn’t hit there, but he did in the Comstock through a combination of his skill as a prospector, a willingness to be flexible about the legal status of the land he was mining (asked more for forgiveness than permission) and good luck at being in the right place at the right time.  

Hearst’s success — and the sight of the stacks of silver bars flowing out of his mines in the Nevada territory — motivated a generation of self-made men to venture west, looking to take their pick, their axe, their pan and their gumption to the proving grounds where they too could make their big strike.

Sounding familiar yet?

Well wait, it is about to get even more familiar — and in a way that is good news for Uber (and Amazon, because in fairness the modern version of this story has two Hearst characters in it), but not great news for all the little on-demand delivery services prospecting in the mean streets on America’s cities, trying to build scale  

History remembers Hearst. After all, the story of how he made his money was an important plot point in an HBO prestige drama. The army of men he sent west looking for their fortunes, not so much, because they didn’t do nearly so well, though they did help Hearst do a whole lot better than he might have otherwise.  

An Army Of Services On-Demand

Flash forward for a second, out of the 19th century and today — to literally right now.

It is about to be a great weekend for take-out food nationwide.  

In most of America, the proliferation of pizzas, gallons of beer and tonnage of buffalo wings consumed can be credited to the big games on Sunday, as the NFC and AFC playoffs decide which two teams get to go on for a shot at greater Super Bowl glory. [Patriots are one of them, but not sure who they’ll play …]

For Americans living in the nation’s capital and surrounding areas in the mid-Atlantic this week, Sunday will also mark the end of the widely forecasted coming snowpocalypse storm. After 48 hours indoors, 50 million or so people on Sunday will all likely experience a strong and simultaneous desire to eat anything other than French toast.

A banner weekend for take-out will likely also shape up to be a banner weekend for the nation’s many, many mobile-enabled food delivery services. And as many hungry Americans learn (fired up by football and possibly crazed by cabin fever), there are an absurd number of options open to them if they live in an urban area and don’t want to leave their house for food.

Want to prep your own football buffet? Instacart would like nothing better than to buy all your groceries and deliver them to you within a few hours.

Don’t really want to cook? DoorDash or GrubHub would be more than happy to make take-out happen.

Want a mix of groceries, take-out and maybe some socks? Try Postmates — they will deliver any and all of those things.

Good on food, but bought insufficient beer and can’t leave your guests alone because some of them are Pats fans and some are Broncos fans and they’ll destroy your house if left unsupervised? Drizly will make sure guests are well lubricated and entirely under your supervision at all times.

And those, of course, are just some of the most famous players. The list could be subdivided into even more specialized variations because food delivery is a very attractive space for innovators, for a pretty obvious reason: Everybody eats, nobody likes calling a restaurant to put in an order and everyone likes going to get that food even less than they liked ordering it.

There are organic grocery delivery services, food delivery that focuses on gourmet offerings, healthy offerings, paleo offerings, vegan offerings — at this point it would probably actually be harder to find a type of food that some mobile-app based service isn’t delivering on-demand somewhere in the United States.  

Since Uber’s launch in 2009, the “Field of Dream” logic has applied to the on-demand delivery space: “If you build it, they will come” — or more precisely, if you build it, they will ask you to come to them and drop something off.  

And, it should be noted, among the bigger players, growth was certainly the rule for the first few years. Delivery on-demand, especially around something as inescapably necessary as food, is highly appealing, especially to high per capita earners in urban areas who put a greater premium on saving time than saving money.  

The problem with the model is not that it didn’t turn out to be attractive. Worse yet, it turned out to be very attractive and not too hard to do.

Which Is Exactly Why Amazon And Uber Are Doing It

If the last 18 months have demonstrated anything to the startup players swimming in the food delivery pond, it has probably been that there’s a need to start swimming a lot faster — and soon, because the big fish have officially gotten into the water.

Back to the 19th century for a moment.  

George Hearst wasn’t the most successful prospector in American history because he had a mystical ability to sense gold in the ground. He was, however, savvy enough to recognize early promise in the claims of some of those smaller prospectors he inspired into the field. He made a 25-year habit of buying up all those promising claims and developing them much more efficiently than anyone else.   

The ones that didn’t sell out that continued to show promise — Hearst often found “other” means to pressure out of the market, and not all of them were quite as dramatically illegal as the show “Deadwood” portrayed. Hearst simply had better mining infrastructure, which meant he could develop his holdings faster than anyone else — and he had a good deal of ability to affect the price of the minerals because his holdings were so large.  

Back to the present day.  

Uber and Amazon have both rather clearly signaled their dual intents to make assaults on food delivery — in its many, many forms. Earlier this week, Uber announced its big push into meal delivery by expanding its limited lunchtime-only service and letting it go live in 10 cities.

Via the UberEATS app, users will be able to choose meals from dozens of local restaurants.

The move follows Amazon’s announcement last year that they too are eyeing a sizable push into food delivery, followed by an aggressive slate of cities targeted for meals on-demand: Atlanta, Austin, Baltimore, Chicago, Dallas, Houston, Indianapolis, Las Vegas, L.A., and the cities in Orange Country, New York, Miami, Minneapolis and St. Paul, Phoenix, Portland, Sacramento, San Antonio, San Francisco, and Seattle. This week, Chicago was added to that lineup.

On a separate front, Amazon also spent 2015 markedly leveling up its Prime Fresh delivery service and directly challenging the green-shirted brigade in Instacart in an ever expanding number of American cities.   

And the startups are starting to show the strain. Instacart has announced price hikes recently (as well as layoffs in its recruiting department), as the firm is starting to rethink its attitude toward rapid growth. DoorDash has suffered a very public down round. According to reports, what was shaping up to be a “unicorn-making” $100 million investment round has since been downsized to a round that would leave the firm with a more conservative $600 million valuation.

Overall, startups that once looked like they might be “the next Uber” are increasingly looking like firms that cannot compete with Uber or Amazon who, like George Hearst before them, have better scale, deeper pockets, better infrastructure and a much greater ability to control pricing to push those smaller competitors right out of the marketplace. Investors are less confident, which means the startups have less money to compete with.  

Which is not to say all hope is lost. Drizly, the aforementioned alcohol delivery startup, has the advantage of bringing one additional facet to the “app + cars + drivers + energy” model, which is the “complicated series of licenses and compliance issues solved for because alcohol is a heavily regulated commodity.” Because what they deliver has a much higher bar for entry, they might have a fighting chance against a bigger player not quite so well outfitted, especially if the nation’s larger liquor wholesalers don’t want to work with the Amazons of the world.

But for the other players, the winning strategy is harder to see. That doesn’t necessarily mean that no one can compete with Amazon or Uber in the delivery war — a head start counts for something.

But it does mean that when you tune into the playoffs next year and want to get your mobile food order done, you might just find there are fewer services on the menu to choose from.