Food delivery, a battleground of profitability, opportunities and corporate responsibility
Food delivery softwares have been present in the world since 1995 when World Wide Waiter founded by Craig Cohen and Michael Adelberg launched Waiter.com which still operates till now. Since then, the food delivery industry has continued to flourish and, in fact, has significantly grown during the pandemic. Deliveroo, Uber Eats and Just Eat are without any doubt the three largest meal delivery companies in the United Kingdom, with their market capitalizations in the billions.
Diversifying activities
Companies such as Uber Eats and deliveroo have significantly grown. The number of users of these apps in the UK witnessed an increase of 4.9 Million users in 2020 reaching 24.8 million users. This increase could be explained by the most obvious reason which is the pandemic and all restrictions related to it which prohibited restaurants from operating normally making delivery the substitution of eating out. Moreover, these applications seized an opportunity from the pandemic which is entering the groceries delivery market therefore offering a covid-free grocery shopping experience and were able to do so through partnerships with the major retailers across the UK. For deliveroo, food delivery became the fastest growing business segment, food deliveries therefore could emphasise on the growth opportunity this created.
Creating new job opportunities and addressing unemployment
Another opportunity these businesses provide is the value they create to drivers; it is evident that these businesses will continue to grow in the foreseeable future. A considerable proportion of the UK labour force was made redudant as a result of the pandemic, in fact an estimate of 800,000 individuals found themselves jobless, however these growing companies require a lot of labour with few qualification requirements, thus providing a temporary solution to the unemployment problem, with a point-in-time Deliveroo receiving up to 50,000 applicants per week. These businesses are recognisable because of their gig economy elements, which refer to labor markets with short-term contracts or freelancers rather than full-time jobs. Despite the fact that remunerations are not high, they are definitely superior than being jobless with zero income.
Drivers work conditions
This unusual value proposition for its drivers constitutes food delivery companies also constitute their biggest challenge. Being gigs, these companies offer very flexible contracts to their drivers and do not perform checks on their qualifications, work permits or backgrounds. From a legal perspective, drivers in these companies are classified as self-employed, meaning that the companies they work for are not constrained to meet many of the legal requirements such as minimum wage and sick pay. A study shows that sometimes a deliveroo driver could barely make 2 pounds per hour. This explains the reason behind the numerous drivers strikes witnessed over the last year as well as a lawsuit filed against the company in 2021. If unable to properly address these challegens regarding work conditions the companies in the industry could really suffer a reputational hit that could affect their viability.
Potential structural improvements
The business models of these companies are also open to many opportunities. These companies primarily rely on adding new restaurants to their platforms; nevertheless, given the large number of start-up restaurants, there are always prospects for these companies to extend their market share while simultaneously promoting small businesses. However this constitutes a big challenge as these applications charge a commission estimated to be ranging from 25% to 45% on each order putting pressure on the profitability of these places, on the other hand these places cannot give up on partnerships with delivery providers as they are still new in the business and seek recognition. Delivery companies should therefore ensure more fair deals depending on the size and age of the company they are dealing with but doing so could affect drivers pay as we mentioned earlier.
Social Media, a backbone for all industries
These companies are succesful as they are able to get the best out of the partnerships agreement with restaurants as well as offering promotions, vouchers.. The continuous rise of social media users in our society could definitely help these apps capturing a larger customer sector, as it is easy for them to post whenever something new is available and could get thousands of views within minutes. As the industry is very competitive, these platforms should rely on more frequent promotions as this is what would distinguish a platform from another, and perhaps offer more promotions with smaller restaurants.
TeChNiCaL IsSuEs
Technical issues are indeed one of the biggest challenges that need to be addressed by companies. These could arise from any technical error or application glitch during the ordering or payment process. Technical issues could also be related to delays in delivery (if the order is delivered in the first place), packaging, quality and quantity of the food as well as drivers behaviour. Depsite having technical support 24/7, these companies should try to prevent these problems from happening in the start as they could have big consequences on their customer base. According to an American Express report, if they have experienced even a single bad experience, 33% of US customers say they would switch to a competitor.
The intense competition
A main challenge for these firms in the industry is the high competitive rivalry. There are currently at least 15 different applications accross the UK with many of these even offering groceries delivery. The number of new entrants could be explained by the high profitability potential of this industry and relatively low costs to launch. As a results, firms heavily invest in marketing and advertising (through promotions, offers and subscriptions) to differentiate from each other. Market shares could easily be altered in the industry, however given the current statistics Just Eat holds a comfortable lead in the UK market.
New delivery methods
A final long-term opportunity that arises to these companies is the usage of innovative delivery ways such as drones, which are currently being tested by Uber research and development department, in addition to self driving cars which could reduce costs while increasing profitability and efficiency. Uber eats has announced its plans to test driverless delivery in the state of California in 2022. If successfuly implemented, there is a high possibility that other firms in the industry will follow the same trend.
Overall, exploiting any opportunity in this fiercly competitive field would result in a decrease in welfare of employees. Therefore, companies in the industry are conflicted between expansion, significant technical, operational and structural improvements on one hand and corporate social responsibility on the other.
