Getting your favorite food delivered with a single tap, especially in the times of COVID, has exploded the growth of many food delivery brands such as Grab, Uber Eats, and DoorDash.
Despite the uptick in demand, the food delivery business remains highly fragmented and at least at this time a money-losing proposition. There are quite a few challenges that food delivery companies face:
- Network effects are limited to a given geographic area. Cross geographic network effects are minimal at best.
- Most users are not loyal and switch to a competing provider in search of a better promotion or an offer, better user experience, or quality of the service. In other words, switching costs are very low.
- Unit economics are tough. Riders do not make enough money, vendors run huge losses on promotions, and users do not seem convinced they need to pay the premium and would rather hunt for a promo.
- The business model seems to have exploited a weakness in labor laws allowing them to “hire” riders without the need to add them to the companies’ payroll. Uber and Lyft are facing legal challenges in California that threaten to shut them down.
In the end, companies that overcome most of the challenges above will thrive. Uber and Doordash have already started to offer rundles — a bundle of offerings, such as rides and food delivery in the case of Uber, and grocery and food delivery by Doordash along with monthly subscriptions. These rundles can be somewhat effective at increasing network effects and customer loyalty.
Despite these initiatives, we will see more mergers and acquisitions in the space as different food delivery providers join hands to minimize the crazy spend on promotions. It is hard to track investments, mergers, and relationships between companies and investors. We have tried to map out the intricate landscape of food delivery businesses across the globe. We welcome readers to help us fill in any gaps.
Here’s a quick snapshot of what the food delivery market looks like, worldwide: