ALEXANDRIA, Va.—Business for online food delivery companies has skyrocketed as millions of customers have shown themselves more than willing to have their food delivered. Over the past five to seven years, various companies around the globe have zeroed in on busy consumers’ demand for food delivered right to the door, and now insiders are expecting the industry to grow to a hefty $200 billion by 2025, reports Forbes.
North America has more than 10 online major food delivery companies, and the trend is having a major impact on the dine-in restaurant business. Grubhub is the largest player, with more than one-third share of the market. Europe also has 10-plus providers, with the Dutch company Just Eat having a presence in eight countries and a more than 83% share of the U.K. market. But in terms of sheer numbers, Asia accounts for a massive 55% share of the global online food delivery market. China alone registered more than $34 billion in online food delivery revenue last year.
To understand the growing clout of the online food delivery business, one need only follow the story of Uber Eats, which launched in 2014 and grew astronomically across the world on the back of its popular elder sibling, Uber. Uber Eats itself is currently valued at $20 billion, registers revenue of $1.4 billion annually, has a presence in more than 670 cities on six continents and delivers almost a billion meals every year.
This sort of growth would be impossible without massive investments. In 2018 alone, more than $9.6 billion was pumped into these companies, with Asia receiving almost 60% of these funds. Major organizations, such as Alibaba, Tiger Capital and SoftBank Group, have been among the leading investors in this business, enabling online food delivery businesses to aggressively acquire smaller counterparts in other countries.
Everyone craves a slice of this growing industry, including companies that aren’t currently in the business. For instance, fintech firms have managed to generate profits from the online food delivery business by integrating their payment gateways, such as digital wallets, into existing platforms, to provide a seamless ordering and payment experience.
But that’s only the beginning. Hospitality partners are leveraging extra capacity in hotel kitchens to prepare meals that are ordered and delivered through online food delivery platforms. Companies in the automotive and transportation industry are looking to tap into the tremendous growth potential offered by last mile delivery. Autonomous technology companies are using ground robots to make commercial deliveries within closed environments, such as university campuses and downtown locations. Automotive manufacturers, including Ford, Toyota and GM, have successfully trialed their autonomous vehicles for food delivery services in the U.S.
However, the fact remains that despite the massive revenues and investments, food delivery companies still struggle to make a profit. Predatory pricing is a widely used strategy to beat the competition where companies swallow a loss on the transaction. Logistical reliability and product quality are beyond their control as these services are contracted out to other parties. If a customer is unhappy with either of these elements, the online food company suffers a monetary penalty. In addition, there is fraud across the value chain—whether through restaurant manipulated ‘ghost’ deliveries or cybersecurity loopholes related to digital payments. Several companies have been unable to survive those problems and have gone out of business.
Another challenge to the business is the ‘dark’ or ‘cloud’ kitchens, essentially commercial facilities dedicated exclusively to serving online takeaway orders. The capital investment required for these are low compared to that of a full-blown restaurant facility, which enables food to be sold at lower rates. Online food delivery companies are partnering with third-party businesses that build or operate these establishments and are even investing in it themselves to prepare food under different brand names.
Despite the rapid growth of the industry, only 11% of the world’s population has access to food delivery platforms. Considering the massive opportunities for expansion, one can expect to see companies aggressively expand and innovate to grab more customers, and by the end of the next decade, online food delivery will be more effective in terms of time, cost and effort. Not to mention, consumers most anywhere will be able to order any type of food desired and have it delivered to the doorstep by drone or robot.