Big players in the payments space tend to have a knack for disrupting every market they enter. Look at Amazon and retail or Uber and cab services. They’ve stepped on the toes of businesses — big and small — undercut business models, and managed to make a few enemies along the way. But that’s business, right?
Those companies have now done it again and stirred up an entirely new marketplace: Local restaurant delivery services. They aren’t the only ones, of course, as the trend of adding mobile apps and delivering food seems to be a space everyone wants to dip their hands in — including investors, major companies and entrepreneurial startups. If there’s money to be made, there’s a good bet the new breed of Internet players like Amazon and Uber will want to be the ones to make it. Recently, even Square has gotten into the food delivery services with its acquisition of Caviar.
So what’s appealing about this space other than the fact that everyone has to eat? Well, turns out, it’s a pretty big addressable market.
Aakhil Fardeen, CEO of Lish — a Seattle-based food delivery service that specializes in delivering food from local chefs — said “The takeout and delivery market today is $70-to-$100 billion, and a small fraction of these orders happen online today.”
No wonder Amazon and Uber want in.
It can also be relatively cheap to enter. But with cheap to enter comes the challenge (and bragging rights, if successful) associated with turning a profit in the increasingly crowded, low margin space. And there are lots of specialized players already vying for position: GrubHub, Seamless and Foodler are the big dogs in the mainstream market and, of course, there are many others in small, localized markets popping up across the country.
“It’s a low-margin business,” said BiteSquad’s CEO Kian Salehi, who oversees more than 200 employees in the food delivery service. “Those that succeed will be the ones with the most advanced and efficient technology.”
Uber has recently started testing its $3 food delivery service, UberFRESH, in the Los Angeles market. With an Uber-fast delivery promise of 10 minutes, it’s also been testing one-day promotions across the country in major cities.
“When you introduce something like Uber or Munchery, you change the paradigm with not only how that service or product is consumed, but how it is provided. If you can change the underlying economics of that delivery platform or that value chain, it puts you in a really interesting position from a financial perspective,” Sherpa Ventures co-founder Scott Stanford said when discussing how Uber teaming up with startups like Munchery to deliver food changes the restaurant delivery service game. “Consumer expectation has changed as a result of greater connectivity. When you think about what the Internet did to media and changed consumer expectation and requirements, the same thing is happening to commerce.”
GrubHub and Seamless set the standard for the food delivery service, but like every other market that’s getting more popular as people’s lives get busier and they demand a quicker, cheaper way to do things, food delivery service is forced to answer one question: Who can do it best, cheapest and quickest?
There are a lot who have thrown their hat into this multi-billion dollar ring.
There are the technology-startups, they are even hungrier to be part of the service — particularly in small markets. For example, TechCrunch reported in August about OrderUp, a new Baltimore-based technology startup, that had raised $7 million more in funding to build its food delivery network.
“Consumers love the convenience of ordering online. Yet, outside the major metropolitan markets, it’s shockingly difficult to find online food delivery options,” said Tige Savage, managing partner at Revolution Ventures, who is joining the startup’s board as part of this investment. “OrderUp allows restaurants in small towns nationwide to cost-effectively join the digital age through an innovative ordering and delivery model. Restaurants love it and consumers do, too.”
And, not surprisingly, Amazon wants a piece of that pie, too.
Amazon recently launched a Grub Hub-style food rival with a simple tagline reminding customers that Amazon can turn a chore that most people hate during this time of year into a service they can provide: “The holidays are busy. We can help.” The service is only live in Seattle at the moment but there are plans to expand once a test is concluded on how valuable the service was. Amazon has also managed to add value to its own internal Amazon accounts as its allow customers to charge food delivery directly to an existing Amazon account.
Clearly, Amazon wants its stock of the food service business, but moving into the restaurant and food delivery service is more about how Amazon can scale the concept to connect multiple aspects of its business. Amazon Local Register, which recently launched, is a good example about how business plans run full circle for Amazon.
It’s also something that we’ve speculated about Amazon in these hallowed cyber pages. When Amazon launched its Fire Phone last summer, Karen Webster wrote a piece that was pretty critical of the phone (she apparently wasn’t alone, not many have sold) yet pretty convinced that Amazon’s ambitions to enter local commerce would be thru services and capabilities that it doesn’t directly compete with – including food services. (She even suggested that they buy Yelp.)
Like most business models, when new technologies are introduced, everyone wants a bite of them. And when market gets shaken up it creates a ripple affect in the industry. For better or for worse, Amazon, Uber and the other commerce and tech companies perhaps have paved the path for getting into the restaurant delivery business. Keep up or move over: that’s how those company’s have managed to get their hands on multiple marketplaces.
“Some observers say technology disruption will soon hijack restaurant delivery the way it has shaken up the traditional taxi business, where newcomer alternatives like Uber and Lyft have shaken the core of a centuries-old mode of travel and business,” author Ron Ruggless wrote in a National’s Restaurant News article. “And restaurant chains are putting the pedal to metal when it comes to driving their delivery decisions.”
And who will win? And how many of the new entrants will last? More players will enter before more drop, said Sherpa Ventures Stanford said, and Lish’s CEO Farden predicts “there will be multiple winners in this space.”
But like most things in payments and commerce, the consumer will decide. Consumer behavior in the food industry is not all the different than how consumer habits influence every other commerce trends. Except in this case, it really is all about how well innovators and investors put their money where their – and the consumer’s – mouths are.