The Restaurant Delivery Market 2016Q1

In October 2015 I wrote about the restaurant delivery market in London and made a few predictions. The market has changed quickly with the most notable changes being as follows:

  • Resto-in (formerly Room Service) pulled out of the UK market in March 2016
  • Dinein ceased trading in mid-2015
  • Deliveroo has expanded globally but is now subject to significant external (shareholder) pressure
  • Jinn is expanding into West London and has a social media differentiator
  • New service providers are launching focused solely on the logistics (delivery) solution

Prediction Recap

Delivery charges will be reduced. “Eventually, this will become fixed price, e.g. £2.50 per order.” This is now the norm and most services offer deliveries at £2.50 for local, with increments for delivering further afield.

Commission paid by the restaurants will be reduced. This hasn’t changed significantly, though newer players are offering slightly lower commissions.

Restaurants will have to be paid more quickly. Still no sign of this one yet. However, paying restaurants on time is key to the survival of the delivery company. There is one company that has a very poor admin record with us, though they appear to be addressing this issue.

APIs. This is still a long way off, but the new logistics services are opening up apps to allow the restaurant to use their fleet and logistics platform to provide delivery themselves, or on the back of companies such as Just Eat who do not offer delivery services. Companies in this space include Stuart, Valk Fleet and Delivery Cube.

UPDATE: After just a few days since publishing this piece, I have learned that Valk Fleet has just been shuttered by its owner to concentrate all delivery related operations at foodora (who also pulled out of London last autumn) passing all contracts over to Take Eat Easy. Delivery Cube’s website is also offline today (31 March) but that could just be their IT department!

Shifting Sands

One challenge in this market is that it is still young and changes are happening all the time. This was noted in my last post, and this update shows two companies leaving the market – one pulling out of the UK (Resto-in) and one folding (Dinein). The tale of Dinein is interesting as it offers an insight into the complexities of investment in this sector. Evan Graj, founder of Dinein said: This creates a “deployment of capital question rather than a solid business case question,” and a funding environment where whoever gets to Series A first becomes the company that VCs are inclined to back. Deliveroo was the company that got to Series A first and they appear to be streets ahead of the competition.

Rumour Mills

There are changes in the pipeline. Just Eat are working on a new platform for their restaurant partners, giving much greater control and flexibility than the GPS-based credit-card-machine-like box they currently offer. And, it is rumoured they are working on adding a delivery solution. Drivers from competitor companies are worried that Just Eat partners with Uber and collectively think that if this happens it’s “game over” for their employers. Isn’t that UberEATs?

However, Just Eat’s appointment of a former Uber executive has recently come to an end, and there is uncertainty as to whether adding delivery to their business model is a good thing (as GrubHub did in the USA which ended with a de-rating of the company). Just Eat’s CEO does not believe that adding delivery is beneficial as margins there are notoriously slim. However, on-time/on-demand delivery is becoming an essential part of the way we live today so there is a business case. A partnership with one of the new breed of specialist logistics companies is the most logical step – Just Eat concentrate on what they do best, and the logistics company does what it does best (whether this is Uber or one of the new players mentioned earlier remains to be seen). It’s a model I am sure some of the existing all-in-one sale-and-delivery players may even consider (splitting marketing and logistics) and an easy one to plug-in to existing infrastructure as the pure-play logistics companies offer APIs for just this purpose.

As long as the logistics solution addresses the problem of driver availability then it will be a winner. I am proposing geofencing drivers into swarms, with each driver able to set their own geofence to some degree. This allows the swarm to be quickly deployed according to where the hotspots are and smaller cells can break off for extended runs which aren’t factored into the current point-to-point models. Delivery logistics is evolving as more and more walkers/riders/drivers enter the crowded streets to get the packets through, so older models will evolve to accommodate the higher availability and minimise downtime.

The only downside of working with third-party logistics providers is accountability. It’s difficult enough when the driver is late to pick up the food for delivery when they are employed by the company that the customer orders from (e.g. Deliveroo, Quiqup, Jinn, Henchman, etc), but if the driver is outsourced then there are challenges ahead. The customer rarely gets the complexities of the model and their only concern is that the food they ordered from your restaurant is late and/or cold and what is the restaurant going to do about it. With multiple players in between, resolving issues will become more complex and time-consuming.

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