This is a new type of podcast. In these occasional podcasts, I research a current trend – this time the restaurant home delivery business. From this research, I then apply the criteria of Merwyn technology – benefit, reason to believe, and dramatic difference – to the customer propositions of two innovators in restaurant home delivery.
To be clear, what I share in this podcast is my opinion based on these criteria. I have evaluated some available information and research, but acknowledge that there is even more to know that might change the evaluation.
An analyst of innovative new businesses that could be worth $1 billion or more, identified 50 firms with this potential. Seven of these were in the online delivery of food, especially restaurant food, business. These are businesses where you can use a smart phone or tablet app to order your food and have it delivered to your home. There are and have been several companies that have tried this over the years. And to be clear, companies like Pizza Hut and Dominoes have been in the home delivery of food business for many years and they both have apps that can make this process easier. The new companies are expanding beyond pizza alone to include a wider range of restaurant options where people can use an app to order food and have it delivered to their home.
Let’s take a look at two of these companies and I will start with postmates.com.
They were founded by three people living in the San Francisco market in 2011.
Based on the financing they received in 2015, the company is valued at more than $400 million.
They are currently in major metro markets in 18 states plus the District of Columbia.
How it describes itself: Postmates is transforming the way local goods move around a city by enabling anyone to get any product delivered in under one hour. Postmates’ revolutionary urban logistics & on-demand delivery platform connects customers with local couriers, who purchase and deliver goods from any restaurant or store in a city.
Mission: Postmates’ mission is to become the on-demand delivery infrastructure for every major city in the world.
Their ultimate goal is to charge customers around one dollar for deliveries of food and other goods in high density ZIP Codes. They now typically charge $5-$20 per delivery depending on the turnaround time and complexity of the order. To get to the one dollar delivery will require having a delivery person pick up multiple orders from a location and deliver them to nearby destinations – for example, pizza to a college dorm during football games.
In Phoenix for example, some of the restaurants that you can order from are pizza places, Whataburger, Starbucks, chipotle, KFC, McDonald’s, Taco Bell, whole food markets, and many specialty restaurants.
Then there is doordash.com. This is another one of those businesses created in 2013 in a dorm at Stanford and started in San Francisco where there are nearly 20 companies competing in their business or similar to it.
On their homepage they say that the first delivery costs only one dollar with no minimum order size. They also say that they deliver from restaurants like the California pizza kitchen and the cheesecake factory.
They are in Phoenix, Arlington – Virginia, Boston, Manhattan, Washington DC, Minneapolis, Houston, Dallas, and California.
Their website says that they try to deliver an order in about 45 minutes.
Typically you use their android or Apple app to order.
It appears that the prices are at best the same price you would pay for a food item at the restaurant. Since the restaurant pays doordash a commission, there may be instances where you pay higher prices than the menu price in the restaurant.
The company positions itself as a tech and logistics company that is starting in the food industry. Their system is a data-driven software-based platform that includes a self learning dispatch system, a capacity algorithm, and smart technology around preparation time. Longer-term this may be a key differentiating point for them and what is a very crowded business segment. If they can build a strong foundation on the food industry and expand to a variety of smaller businesses it could be a distinguishing factor that produces competitive advantages for them.
They currently charge a flat fee of seven dollars for delivery which increases to $12 for an order over $100.
Let me switch gears and talk about these business propositions from the perspective of their benefits, reasons to believe, and dramatic differences.
I start by talking about their benefits.
First is their convenience benefit. In my corporate career I worked on many, many product categories and always did a deep dive into the research on those products. I was always struck by how the need for convenience always seemed to be in the top three needs for most of these product categories. Now the meaning of convenience obviously changes significantly from product category to product category. Nonetheless, it does say that customers who have very busy lives are always interested in something that makes it easier for whatever category they are interested in.
Having said that, clearly the convenience benefit is very important in the propositions of these two companies and others like it. Instead of having to drive to a restaurant and sometimes stand in line to get a table, all you have to do is use an app to order your food which is delivered to your home or workplace.
Now the question becomes how convenient are these delivery companies? Some suggest setting of expectation of 45 minutes. Some customer feedback I have read via twitter on these companies suggest that an hours wait is not unusual. How convenient is this really? If you order food when you’re hungry, as most people do, and then have to wait an hour is this really a good solution? I’m guessing it’s probably not for many or some people.
I now will talk about the food quality benefit. You order from a restaurant because you hope to get better food than you could make it home. In virtually every situation I can think of, the food quality delivered to your home is lower than if you were in the actual restaurant having the food served to you. The food travels in a foam or plastic container of some sort. It cools down and changes character during the probably 10 – 20 minute drive to your home. This entire process would seem to lower food quality to a degree.
I will now talk about the price benefit. Certainly you will need to pay a delivery fee and a tip on top of the delivered price. There are some indications that since restaurants need to pay the delivery companies a commission that they might actually charge higher prices for delivery orders versus orders placed in the restaurant. Net, you will probably pay about $10 or more for an order to be delivered to your home than what it would cost at the restaurant.
Bottom line: wait times after ordering of about 45 minutes, lower food quality than you would get in the restaurant itself, and paying more for the lower quality food. Different consumers will balance out the benefits versus the negatives differently. I suspect that there is probably a market for this, but there will be consumers that are unwilling to get the negatives with the benefits. Many companies for at least a decade have tried to be successful in this business, and to date most have not been any better than modestly successful.
Let me briefly talk about the reasons to believe the claimed benefits of these companies.
If you have previously tried companies like this before, this will significantly influence your belief in the proposition they make.
If you already order from companies like Pizza Hut and Dominoes that sell far more products than just pizza, you have a baseline to begin evaluation of this delivery method. The caveat may be that pizza quality travels better than maybe some other meals, but that is something you may be willing to explore.
If you read twitter comments and other sources of current customer comments, you will find a real mix of feedback. Some people are very pleased and others are very displeased.
Net, it is not a slam dunk that people will believe that this is a good option when they want to have other than home prepared food.
Lastly, let me briefly talk dramatic difference.
There is not much dramatically different in the benefits these companies offer. Yes, they offer the ability to get home delivered food from more than restaurants than those primarily selling pizza. On the other hand, there have been and currently are several if not many companies delivering this benefit.
Doordash may have a difference with their software that can significantly improve delivery efficiency and therefore time and food quality. That remains to be seen.
Lastly, many, many people are getting into the rapid delivery of products ordered online. Just take a look at what Amazon is doing.
Net, the differences of the current companies appear to be relatively modest at best.
This podcast is not meant to be a definitive assessment of these companies or the industry that they compete in. Rather the primary purpose of this podcast has been to demonstrate to a small degree how you can use the principles of Merwyn technology to evaluate a business.
This is a process that I think you can use to evaluate your own business. If you can be objective, there can be significant benefits to doing this.