Future of the food delivery industry
In last one decade, food delivery grew at an exponential rate to become an industry of its own. Personally, I believe it has had a huge impact on users’ eating choices & behaviour, restaurants’ business and created a new stream of income opportunities for its delivery executives.
But things don’t look that awesome anymore. Delivery executives are having issues with the food delivery platforms, restaurants are sceptical of huge commissions charged to them and users seem to be consciously changing their behaviour towards these platform. Things don’t look like as if they are sustainable. Ask Zomato’s leadership, if you don’t believe me.
The unstable equilibrium
The moat of food delivery startups that allows them to remain in power is their multi-sided network effect. They have 100s of millions of users, millions of restaurants & 100s of thousands of delivery executives. Which means enough choices for end users, enough business for restaurants & enough work for delivery executives.
Yet, most of it is non-exclusive. Especially between the two giants, Zomato & Swiggy. You can find most restaurants on both platforms, delivery executives doing delivery for both and users having both of them installed & ordering from both but having preference for one in most cases.
So let’s look at the motives of the three participants of the network & what it will take to change their behaviour.
Restaurants
Fundamentally, restaurants get more business through these platforms but do lose a substantial share of the resultant revenue in commissions. Further, they are forced to compete against discounts from the platforms & peers to either lose business share or to further a part of their revenue.
The restaurants’ motive to leave is clearly the lost revenue & business. Their total lack of control is something that can be stifling for them. Their reason to stay is the business these platforms bring.
Better commission structure, better control over order fulfilment & better access to users are some incentives restaurants are looking for in future. Of course they expect similar order volumes.
Delivery partners
As the current system is structured, these delivery partners are nothing but freelancers. What they need is work & they will work for the highest bidder. Zomato claims that these are shorter stints & hence no job security, insurance, health support etc. makes sense. But, traditional courier services have somehow managed to retain long term employees before these food delivery startups came along. Which means, longer stints are possible. And I would like to assume that it is the lack of job security and other benefits that’s the cause of shorter stints and not the other way round.
Anyways, there are multiple food delivery platforms out there. And so many new use cases for delivery partners are arising. Clearly a single platform that aggregates these partners and provide them better stability will benefit all parties.
Food delivery platforms can shed their responsibility towards delivery partners & the negative PR that comes with it. The delivery partners can have better job security.
Consumers
What consumers need ultimately is quality food delivered to their doorstep. A plethora of choice & discounts are added benefits. There would of course be people who prefer predictability while others would want to explore something new.
But the current platforms clearly benefit from and promote an exploratory behaviour over predictability. Because then there large network of restaurants becomes a hook for those users.
One assumption that has fallen flat though is that once users will become habitual of these platforms discounts won’t be needed anymore. Because clearly, these platforms are still heavily dependent on these discounts.
The key problem
That brings me to the key problem. It is not really the network effect that is sustaining the multi-sided network of food delivery platforms. It is the discounts they offer to end users which locks in the users, as a result locking in restaurants & delivery partners.
This also highlights the challenge with the business model of these platforms. Even after taking a huge chunk of restaurants’ revenue just to solve discovery, they are in loss. Because most of it, they are burning in discounts. The moment one platform reduces discount, users will jump ship to the other taking restaurants and delivery partners with them.
The future
Here’s what I think the future of food delivery industry looks like:
- 3rd party fleet: Clearly, unlike 10 years ago, restaurants can easily avail 3rd party hyper local delivery service and service their users. No need for them to have dedicated fleet or pay fixed salaries.
- Multi-restaurant platforms: Platforms like EatClub and Eatsure are an opportunity for restaurants to explore new avenues beyond Swiggy & Zomato. This saves them the overhead of building their own platforms & marketing expense to bring users to them. This would also mean that end users get enough variety to justify their needs.
- D2C for restaurants: With 3rd party fleets & easy access to users across channels, one way for big brands is to go independent & directly reach out to their users. Thrive is one such platform that is building tools to enable restaurants to do that.
- A new user behaviour: The core though, which nobody seems to have cracked yet, is a new user behaviour. Something that’s not dependent on discounts to drive order volumes. Low cost acquisition of users & getting repeat orders from retained users without burning money can be the real game changer.
