The Delivery Space

Food for Thought


“The domestic take-out market is $70 billion annually,” GrubHub CEO and co-founder Matt Maloney said in an interview with “Closing Bell.” Grubhub/Seamless is the biggest player in the US, and on track to process $3 billion this year. It sounds like a big number, that’s only the existing take out market. It’s significantly larger as traditional offline phone orders move online. Arron Levie put it well with a tweet, “Sizing the market for a disruptor based on an incumbent’s market is like sizing the car industry off how many horses there were in 1910.”

When you look overseas, the delivery craze is the same. Delivery Hero snagged $350M in funding last year, bringing their total raised to $635M. Food Panda is also launching in emerging markets. That being said, the market is still new and exploding. Yes, some in the space will fail (Wun wun sells assets in fire sale), but clear winners are yet to be decided.

Existing Food Delivery Space:

Grubhub doesn’t run the deliveries themselves, but rather dispatches to the restaurant or local 3rd party delivery services like DiningIn and Restaurants on the Run, which were recently acquired . There’s another pure platform play emerging with the introduction of Magic & Operator. There are more cross restaurant, cross delivery companies popping up. Maple’s a new one that launched in NYC this month.
Fast casual restaurant like Chipotle are now the fastest growing restaurant segment. Mobile ordering and delivery is becoming the new school drive-through. Brick and motor will always have their place, but restaurant owners want new ways to reach customers and bring their products into customer’s homes.

Urban Logistics

Keep in mind, the above is only addressing the food portion of the on-demand delivery space. The market is easily +$1 trillion when you include the several other retail verticals including product, grocery, and alcohol.

Some companies are focused one vertical, while other’s operations are testing across several.

The Land Grab

$600M was invested in the delivery space in 2014, a 13X jump from 2013. Clearly the space is hotter than ever. But why?

3 Reasons:

  1. Sharing economy adoption & urban living
  2. Scale generates greater efficiencies
  3. There’s power in becoming the go-to platform

Sharing Economy & Urban Living

A few years ago the thought of sleeping on a complete stranger’s couch was crazy. Now anyone can pull out my iPhone, tap a button and find a place to stay in over 34k cities across the world. Rest at ease because over 25M other guests have done the same. Why pay for a car lease, parking and insurance when finding a ride with Uber is easier and less expensive?

As shared services become more widespread, living in cities are becoming more attractive, and living in the ‘burbs is less desirable.

Everything anyone could ever need is local, in an urban environment. Companies like Favor thrive in areas like this. There’s no need for our company to purchase inventory ahead of time. Everything that anyone could request is at stores and restaurants nearby.

Scale Generates Efficiencies

Gaining market share puts logistics companies in a better position to gain even more market share. They can continue accelerating growth through optimized operations and engineering.

A practical example of how this works in delivery is a concept we in the industry call ‘doubles’ or ‘stacking’. If a delivery is going from the same location to a similar end point, the delivery can be stacked. Then, the driver can take two deliveries at once, making more money than they would have otherwise.

Johns Steakhouse takes 25 minutes on average to prep food at 6PM on a Friday night. An order comes in from Chick-fil-A which has a prep time of 5 minutes at that same time. A driver could order the steakhouse food and complete the Chick-fil-A run before the steakhouse finishes making the food.

Delivering at scale causes faster delivery times and creates even more demand:

Photo Credit: Uber’s Virtuous Cycle: Tweeted by David Sacks of Yammer
Photo Credit: Economies of Scale

Economies of scale suggests that brands can profit more when their cost decreases from operational efficiencies. However, some of the greatest companies will continue discounting the product to gain a competitive edge.

“… this is really the essence of discounting: by cutting your price, you can boost your sales to a point where you earn far more at the cheaper retail price than you would have by selling the item at the higher price. In retailer language, you can lower your markup but earn more because of the increased volume.”
– Sam Walton, founder of Wal-Mart

The Go-To Platform

VC’s know that companies with a large gross merchandise volume will discover interesting ways to monetize, outside of their existing revenue streams.

Brands like Taco Bell want delivery, but admittedly don’t have it figured out.

“Of the $300 billion spent annually on advertising, 90% of it ($270bn) is still offline and not measurable.” Both Sides of the Table. The best merchants are going to get a lot smarter when it comes to spending their dollars. Why pay for a Facebook ‘like’? Who knows what the ROI is on that. How about only paying for the sales that would have otherwise been missed. Or, receiving rich data around why that sale happened and how you can cause more to happen. Or, private ratings and comments about the food and service. Not some random note on Yelp, but something more useful (Sat from 1 to 3 am is the busiest time. Hamburgers are the highest rated food. Customers who order chocolate shakes tend to live in X zip code and order the most often).

Customers want to discover the best local places and experience dining in new, convenient ways. They want to see only ‘hyper-local’ relevant content that represents their neighborhood. Building trust as THE go-to-platform means a lot of things. Constantly exceeding customer expectations and focusing on building an amazing product is a good place to start.

Becoming THE go-to-platform means becoming the new Amazon.

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