Post-pandemic trends in last-mile food delivery
DoorDash, Wolt, Just Eat, and Delivery Hero, are just some of last-mile food delivery companies that have become household names in the US & abroad during this pandemic. The value-proposition to consumers (demand-side) is clear; browse hundreds of restaurants in your local area, order conveniently from the comforts of your home and have food delivered straight to your door within an hour for a price as low as 5$ per delivery.
The value proposition to the restaurants (supply-side), on the other hand, is not as clear-cut. DoorDash and its peers argue that the primary benefit to restaurants is an increase in revenue, evident from the plethora of case-studies displayed on their websites. Each more fantastic than the next, with some reporting up to 80% increase in order volume since joining their service! These type of case-studies are great at getting restaurants in the door, but on the flipside there is relatively little data to merit the claim that restaurants (ultimately) benefit from their services through higher profits. Huh?! Come again? How can an 80% increase in revenues NOT translate into better business for the restaurateur?
Well, let’s dive a little deeper.
Services such as DoorDash charge restaurants a whooping 30% fee on total order value (this covers delivery- and platform fee’s). This means that if you place a 30 USD order for lunch from your favorite Vietnamese restaurant, that local restaurateur actually only pockets 21 USD herself AND, since the average profit margin for a take-away restaurant is around 8 %, this actually means that the restaurateur LOSE around 7 USD to fulfill that order (0,08*21–9 ~7 USD).
Now, some delivery operators may claim that this is not the case, since restaurants often have slack capacity, meaning that they can fulfill orders without expanding their cost base. This, however, often turn out to be a modified truth. Peak periods for Wolt and other delivery services are unsurprisingly during lunch hours and evenings, meaning that they bring customers in the door right when most restaurants have exactly no slack capacity. I suspect that this is the the primary reason I, myself, have started noticing popular restaurants/take-away spots disabling Wolt deliveries during these hours here in Copenhagen — It will be interesting to see if these are isolated incidents or the beginning of a new trend.
IF this is the beginning of something more, this could bode ill for last-mile food delivery services. One could hypothesize that popular restaurants would opt out of their services during busy hours, leaving only sub-par dining experiences and dissatisfied customers.
Alternative solutions have started gaining traction in recent years, these include ChowNow, Olo, and OrderYOYO, which enables restaurateurs to own their own sales channel. In essence, these companies charge restaurants a monthly fee + commission (based on transaction volume, typically 8%), and in return provide them with a branded website, branded app, payment- and order systems — essentially everything needed to bring a restaurant online. These solutions do not offer delivery as a default, but through partnerships allows restaurants to enable it at a 10% commission fee.
These solutions (in the eyes of the restaurants) outstrip last-mile delivery apps on multiple dimensions: 1. it is now the restaurant which owns the customer relationship, 2. the average fees are much lower, and 3. there is a greater degree of flexibility (as an example restaurants can choose to “push” the entire delivery fee unto the consumer or to subsidize X %). Of course, part of the price opting for one of these solutions is that the restaurant can no longer tap into the marketplace provided by Wolt/DoorDash/Just Eat etc., but for the popular, local restaurants with many recurring customers, this has proven to be a very attractive alternative.
It will be exciting to see how this space develops in the coming years. There seems to be little doubt that last-mile is here to stay — but the power struggle between restaurateur and last-mile provider have only just begun.
[Disclaimer: VF Venture are active shareholders in OrderYOYO]
