There are potentially plenty of excellent dining choices close to where you live. But do you find yourself ordering food from delivery apps a few days a week? With the rising coronavirus pandemic closing restaurants and customers isolating themselves, we’re likely to see a surge in food distribution, similar to China’s 20 percent increase at the height of its crisis.
At the touch of a button, we can have a taxi, laundry service, car wash, and even booze or weed delivered to our home or workplace. And as customers, we all make the implied trade-off of being able to pay a little more for the convenience of getting items delivered to our door.
We’ve seen a new generation of industry-leading technology companies emerge over the last decade by concentrating on innovation in otherwise commoditized industries, ranging from financial services to consumer goods. Investing in stocks? Do you want to order a razor? Do you have a prescription that needs to be filled?
Competition among distribution companies with billions of dollars in funding is fierce, and with so much of that money going toward chasing top-line growth through promos, promotions, and other giveaways, core product innovation has fallen by the wayside. Despite the billions already invested by venture capitalists in the food delivery sector and the massive growth predicted in the coming years, we believe the industry is still in its infancy and ripe for innovation. The businesses that achieve sustainability and market leadership through the delivery of quality goods, better services, and clear pricing will be the ultimate winners.
However, while customers are willing to pay a premium for convenience, the food distribution environment suffers from a lack of differentiation, which is exacerbated by an opaque and perplexing network of markups and fees.
Food delivery systems, including the use of third-party apps like Deliveroo, Grab Food, and Uber Eats, have seen an increase as more people stay in and continue to help local restaurants that have closed their doors except for takeout and delivery, as a result of the Coronavirus lockdowns and quarantines. Many consumers are unaware, however, that these apps charge the restaurants hefty fees, usually between 15% and 30% of the total order price.
To reach their millions of customers, restaurants choose to partner with third-party delivery apps. If a customer does not see a local restaurant listed on any of the apps, they will believe it is closed or does not deliver, and choose another choice. Additionally, the apps can free up workers, reduce order errors, and keep customers from missing out on a check. However, even as app rates have been reduced in recent months, delivery service fees are cutting into already-decreased revenues, particularly in the face of the pandemic.
Today’s leading food delivery apps have also apparently developed new ways to charge customers for the same things in order to achieve profitability. Consumers are instead confronted with a delivery market where the services are nearly indistinguishable, but the price they pay for the exact same item from the exact same restaurant will differ by 20% or more depending on the app they use.
After the outbreak, the price of food ordered through a delivery app has risen in many markets. Since app subscription fees are influenced by food prices, the total bill would be higher. Customers are also responsible for other expenses. In California, for example, apps started charging consumers a fee tied to the incentives that drivers were promised.
Customers who want the convenience of delivery, restaurants say, will continue to pay for it. To make those choices more attractive, many people are investing in pickup and drive-through services.
Perhaps there could be better ways to innovate on the delivery app experience. Here goes:
- Multi-location ordering (for example, ordering sushi and pizza at the same time), which would be supported by the expansion of multi-tenant virtual kitchens.
- Packaging could be updated. Keep hot foods hot and cold foods cold when looking for more eco-friendly alternatives that save money and the climate.
- The ability to support choices outside a set menu — the technology to support “create your own” at scale and provide data back to restaurants to influence ongoing menu creation.
- Instead of today’s rudimentary search features, apps that learn things like “he’s lactose intolerant” or “she despises tomatoes” and use AI to boost search and meal suggestions would be the norm.
- Delivery apps should be able to gather more data from consumers than restaurant reviews thanks to their millions of users. Others would struggle to keep up with applications that better harness item-level feedback, imagery, and related data.
- Users can pay extra for premium services like rush deliveries that bypass the line or having the delivery driver deliver goods to the front door.
- Better nutritional data and search functionality (such as searching by calories or Keto), as well as integration with common diet plans and health and fitness-tracking applications.
- A social feed of orders among your personal network with integrated gifting might be a stretch, but
- Apps have only recently begun to successfully harness the power of loyalty and incentives, both inside the app and as a service to be provided by restaurants.
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