The Wall Street Journal reported that Amazon is expanding its grocery delivery services, and curbside pickup and convenience stores are being planned nationwide. Competitors Walmart and Kroger have already taken similar steps. Grocery is the biggest category in consumer spending, and it is the next retail segment for the powerhouse to dominate following books, electronics and clothes.
But the category of perishables marks new territory for Amazon, which The Motley Fool thinks could present a challenge and put a deep dent in short-term profits. Also, none of the advantages that Amazon currently has apply to AmazonFresh, which launched in 2007, or groceries. Grocery delivery is excluded from Amazon Prime because of the costs involved, and the company charges more than its competitors at $15 a month. For comparison, Instacart offers free two-hour delivery for a $149 yearly fee, 20 percent less than Amazon. Offering a wide range of niche products is not really advantageous in the case of eggs, flour or milk, but consumers do like to hand-pick produce to test it for ripeness, which is not an option when ordering online.
The grocery sector is one segment where Walmart and Kroger have a leg-up on Amazon, having relied on brick-and-mortar infrastructure. Walmart has also been expanding its grocery pickup program and expects to have it available at more than 1,000 locations — 25 percent of its store base — by the end of 2017. Walmart already has parking lot space it can use for a pickup kiosk, while Amazon must find and convert real estate.
Now, Amazon is experimenting, it seems, in a sector with narrow profit margins, and it has the luxury to do so. Kroger has a profit margin of less than 2 percent, not much for a $400 billion company like Amazon to get excited about, especially where there are significant upfront costs. What is Amazon up to?
The Fast Pace Of Fast Delivery In Europe
The food delivery business in Europe and the U.S. is as fast-moving as a New York restaurant at first turn, and the speed of the comings and goings is holding investor attention.
An unlikely player in the food delivery business, although we all get hungry, is Square. But it has decided it wants out of food delivery; after all, its core talents are in payments and not pies or pizzas. Square is struggling to find a buyer for its spinoff, Caviar, despite talks with Uber, GrubHub and Yelp, according to Bloomberg. According to Business Insider, Caviar does not make a profit, and the extent of the losses is not shown in the company’s financials.
In the U.S., Postmates raised $100 million in additional funding and has its eye on grabbing the extra on-demand meal delivery space as it expands. Postmates’ competitors include Sprig, which specializes in healthy food, DoorDash and, of course, UberEATS and AmazonFresh.
According to Business Insider, Postmates was slow to raise its new round of financing, and DoorDash raised only a $600 million valuation. This was the same as its previous round, but the company had initially hoped for a $1 billion valuation. UberEATS and GrubHub, however, are growing. Uber is investing globally in UberEATS, and GrubHub’s stock price has increased by almost 65 percent so far in 2016.
In Europe, Take Eat Easy folded after struggling to find investors, and the global heavyweights made their presence known as UberEATS launched in London back in June, while AmazonFresh jumped in to threaten U.K. supermarkets. The U.K.’s Deliveroo raised £250 million ($306 million) in funding, and Berlin-based Delivery Hero is rumored to be preparing for an IPO. City Pantry, a B2B company, raised over £1 million ($1.35 million) for its office catering business.
Although there are clear winners and losers in the initial elbow-pushing, there is huge activity and interest. Morgan Stanley Research found that, as of 2015, approximately $210 billion worth of food is ordered for delivery or takeout annually. GrubHub/Seamless and Eat24 generated $2.6 billion between them, but there is still a huge market. So, is the outlook rosy for this sector?
Well, everybody has to eat, and for most, it’s a pleasurable pastime. U.K. households spend 20 percent of their disposable income on food, and the industry is worth £150 billion ($184 billion) a year.
Ask any family, and they can explain why food delivery is such a godsend, but we’re not just talking about fast food. Consumers want to be able to order healthy food, too. Fast food in a carton or a bag is OK, but heathy food in a box, such as that delivered by HelloFresh and Blue Apron, which requires assembly, is still a product that removes the problem of how to cook something healthy for dinner and when to find time to shop.
But the companies themselves face the challenges of managing the logistics of a perishable product and managing a fleet of drivers that must meet promised delivery times. These are two very separate concerns that have challenged even the industry’s best players. UberEATS is gouging its bottom line and giving customers money off for late delivery. The winners will have to deliver food on time and negotiate the delivery aspect, too, with all its associated management and personnel problems.
But the industry leaders are not diving for the finish line yet, and it is still anyone’s race. There will be new entrants and consolidation, and more established players will have the resources to expand their offering to cater to niche audiences and different dietary requirements.
At this rate, and with consumers’ and investors’ growing appetites, neither food deliveries nor funding are going to come to a screeching halt.
Look At China, For Example
B2B food delivery to offices is a common sight in cities such as Dalian in China, according to Nikkei Asian Review. Food delivery app revenues in China are projected to reach 165 billion yuan ($24.5 million) this year, tripling in size in three years. Ele.me is the top food delivery app. One man in his 20s, interviewed by Nikkei Asian Review said: “At work, I’d rather not bother to go out for lunch … I just want food that will fill me up.” And he means that; he sometimes orders three meals in one day.
The Chinese food delivery app market expanded by 45 percent in 2015 and reached 125 billion yuan, while the number of users rose by almost 30 percent to more than 200 million. The market is forecast to reach 234 billion yuan in 2018 and to serve 346 million. Ele.me’s app allows consumers to choose from around 600,000 restaurants in over 1,000 municipalities. Over 70 million users place 5 million orders a day, on average.
But competition is fierce. Three players currently control 90 percent of the food delivery app market. There are few ways for businesses to differentiate themselves other than pricing, and the big players can afford to outprice their smaller rivals.
Delivery Manpower Could Be Hard To Come By
The big companies are baking a bigger pie and are not the only ones taking a bite. Food deliverers are seeing their wages go up as they become more in demand. In Singapore, Paul Lim, founder and president of industry body Supply Chain Asia, estimates that food delivery rider earnings have gone up by an average of 50 percent over the past two years, and the number of riders is going up by 15 percent a year.
According to Ministry of Manpower figures, the gross wage of a delivery rider averaged $1,914 in June last year. Companies are extending their staff to meet demand. What To Eat has 30 full-time delivery staff and 50 freelancers, and the numbers of both types of workers have grown by 25 percent a month over the past year.
But the labor pool is quickly evaporating with the surge in orders; firms are struggling to find staff and to cope during peak periods, like Chinese New Year. UberEATS, which launched in May, trebled its pool of drivers over the last eight weeks.
Ang Hin Kee, NTUC assistant secretary-general, said that technology might come to the rescue of food delivery suppliers in the form of autonomous vehicles, and delivery drivers might be able to run autonomous fleets if they have access to employer or independent training.
Kayak For Food
Now, consumers can search and order faster using Bootler, the Kayak for food delivery. This startup is based in Chicago, and its users can view menus and compare prices among available restaurants.
Bootler — think “butler” and “bootstrapping” — is a food delivery service engine based in Chicago. Bootler helps you get your food delivery quickly and for a lower price, according to Forbes, by functioning a lot like Expedia and Kayak when searching for flights. Bootler lets users view menus and compare restaurants. The Bootler software searches and filters providers, such as Delivery.com, DoorDash, Eaststreet, GrubHub and Postmates. Bootler also works with an on-demand delivery service called Saucey that will add alcohol to an order.
The founder, Michael DiBenedetto, was frustrated after a brainstorming session when he realized his team had not eaten, and he peeled through various food websites. “After visiting several different websites, I wondered whether it would have been faster to just run out of the building and grab a bite to eat. I literally said, ‘There should be a search engine for all this stuff like there is for travel.’”
Bootler has exceeded expectations, and according to DiBenedetto, Bootler also just launched an iOS app to complement its website and will have an Android version soon. Revenues come from a commission from the delivery service when orders are placed through the website. Bootler has raised $2 million in funding so far, and there may be another round next year. DiBenedetto said that the company plans to expand to other cities in 2017.
Domino’s Pizza On Indian Trains … Are Those Olives Or Cockroaches?
And the beauty and convenience of food delivery apps are delighting passengers on Indian trains who have long suffered terrible meals on long-distance journeys of 19 hours or more. At least now they can be a little more sure it’s olives they are eating.
CTV News reported on new fast food services that passengers can order from a smartphone app. Domino’s and Kentucky Fried Chicken are replacing the former cuisine that the AFP reported had “cockroaches being found in dishes, and a leaked internal report said food was cooked in ‘dirty, smelly and waterlogged pantry cars.’”
India is modernizing its national railways, which transport 23 million passengers a day. KFC and other major chains were asked to provide eCatering services that bring food to passengers at major stations if they have pre-ordered online or by phone.
Next, base kitchens will be established in major stations where the food companies can prepare freshly cooked food for delivery on trains. Entrepreneurs are also trying to get in on the action. For example, Pushpinder Singh, who founded TravelKhana (Travel Food) with his wife in 2012, signs up individual restaurants close to stations on busy routes and provides a free delivery service.
“There are around 5,000 long-distance trains with an average journey of around 770 kilometers [480 miles], but only 6 percent of them have a proper food service,” Singh told AFP. “This is the section we are targeting.”
“On time” and “fast” have a whole different meaning for food deliverers on the Indian rail network because there are only a few minutes to locate customers before the train leaves the station.
Well, for the driver who gets stuck in a congested carriage … at least there’s pizza.