The food delivery business has suddenly shifted from being about consumer convenience to a battle of market competitors more focused on profits and flattening the value chain than providing options. An industry focused on giving hungry consumers the opportunity to select from a wide array of dinner-time choices has morphed into pizza delivery 2.0 and that’s, at best, boring. Simply said, the home chef faces a lot of cacophonies when it comes to grocery delivery, meal kits, and restaurant fare (home and away).
Profits are a good thing, especially for public companies or ones with an eye on expansion or acquisition. However, what we find in recent announcements is a change from the initial concept of turning a fleet of rideshare drivers into a virtual extension of a city’s best restaurants. When Uber Eats acquires Ando, a “dark kitchen,” its fare likely will become the focus of its New York delivery options. The king of all rideshare firms thus sends a signal to its customers that Ando’s bibimbap and fried chicken will be tonight’s special every night. The food delivery business is heading for a 180-turn, moving from delighted consumers (as we see in the GrubHub ads) to one of supplier vertical consolidation.
“We are committed to investing in technology that helps consumers, delivery and restaurant partners alike,” Jason Droege, Head of Uber Everything told TechCrunch. “Ando’s insights will help our restaurant technology team as we work with our restaurant partners to grow their business.”
None of this is to say that Uber Eats is wrong or alone in seeking ways to increase its bottom line. Others such as Deliveroo and Amazon are connecting pieces of the value chain—that is owning the food prep and delivery segments of the business—to streamline its operations. And, from a business 101 perspective, it is a sound idea if the founding principle of consumer choice remains intact.
Even with innovations, such as robotic delivery and ordering food based on your specific health DNA, this is an industry headed for a major reckoning. Why? Here are a few good reasons:
- The barrier to entry is low. Take Evansville 2 Go for example. A local man in Evansville, Ill., has built a food delivery service for his local community by hiring some drivers and connecting with a handful of local restaurants. There are many similar examples taking place around the country where entrepreneurs in markets too small for the “big guys” to tackle are building simple versions of GrubHub, Uber Eats, and Amazon Restaurant delivery. As pizza parlors as far back as the ‘60s (that’s the 1960s) knew, all it takes to deliver a fresh pie is a telephone and a trustworthy person with a car.
- Dark kitchens are a weak link in the restaurant delivery business. When a customer looks at his or her menu options for food, what is the more likely choice—an establishment at which they have had a memorable meal or one that may be run by a celebrity chef but lacks the cache of a local favorite?
- Competition for the consumer dollar. The average American dines out a bit more than four days a week. That leaves three days for restaurant delivery and home meal kits (of all varieties) to battle it out for the consumer dollar. Given dining out often costs more than these two alternatives, there’s not a lot left in an individual or family’s food budget after those four out-of-home meals.
For those who believe that millennials will drive the restaurants delivery business, here’s some interesting news from economists at Bank of America Merrill Lynch. Millennials are losing their taste for restaurant dining. Spending at restaurants went down more than seven percent since 2015.
“It stands out as a bit unusual how soft restaurant spending has been considering where we are in the business cycle,” Michelle Meyer, head of U.S. economics at BofA Merrill Lynch told CNBC. “The consumer should be spending more on a broad range of items. But we’ve seen restaurants slowing more akin to a recessionary environment.”
Take heart—pizza delivery isn’t going anywhere.
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