Overview: business models delivery (II)
Ghost Kitchens such as those from Deliveroo Editions are a business model that will experience further growth as a result of the Corona crisis, the management consultants at McKinsey expect.
Delivery is not equal to delivery. Christine Schäfer, researcher at the Gottlieb Duttweiler Institute in Zurich, has compiled a detailed overview of the underlying business models. We document it in two parts. The second part focuses on the different roles of online delivery providers (ODP) such as Lieferando or Deliveroo.
5. aggregator ODP - No Driver Fleet
Online delivery providers are now entering the market with a business model based on a customer-oriented app, a website or telephone number and an enormous amount of back-office computing power to increase order volume.
To be successful, the aggregator must be a world-class matchmaker for food orders. It needs a large customer database and a wide range of restaurant menus offered in major cities. For many ODPs, the biggest hurdle to market entry is the cost of customer acquisition. In contrast, they do not need their own fleet of drivers for delivery in this delivery model. The drivers work on a fee basis as independent deliverers with their own vehicles.
The most expensive piece of the delivery puzzle is delivering the food to the front door, also known as "the last mile". One way to minimize this effort is for the customer to receive the delivery at a central delivery point.
Yun Ban Bao, a start-up in New York City, targets food desserts for the many Chinese-born residents. It uses direct marketing via the Chinese online service provider WeChat. This creates a separate supply market with the advantage of pre-ordering and pre-payment.
Yun Ban Bao accepts online orders for the next working day and then sends the orders out in a mass delivery model. In this way, the company reduces delivery costs and retains control of its driver fleet. With a fixed delivery network and pre-determined distribution points, often outside of parks, office buildings or homes, this system is more like a bus route than the taxi route model with individual delivery. Just Eat, one of the world's largest and most successful ODPs, launched into the market with its own delivery fleet of permanently employed drivers. The company also works directly with restaurants that have their own delivery fleets. Just Eat acts as an online ordering platform and offers the local company the opportunity to be the face at the door of its customers. Thanks to the Just Eat delivery fleet, restaurants without their own delivery infrastructure can also list their menus in the app. One of the biggest threats to traditional restaurants is the concept of dark kitchens. This is a space created by an ODP with the aim of supplying as many customers as possible - at a minimum cost per delivery kilometre from the restaurant kitchen to the hotspots. Although this is similar to the Cloud Kitchen model, in this case the ODP establishes a group of small but competitive restaurant kitchens in one location and leases these dark kitchens to various partner restaurants.
A Dark Kitchen is also in line with the trend towards the food hall concept, but has no direct customer interaction - no guest ever sets foot in these facilities. In the UK this has been driven by Deliveroo with its urban RooBox or Editions concepts. Partner restaurants rent mobile kitchen space from the ODP and pay a higher percentage fee to cover the expansion costs for their space. The restaurants equip the kitchens with staff at their own expense.
It is an exciting and challenging time for both restaurateurs and online delivery providers. So far, neither side seems to have found out how to make the most of consumers' growing demand for convenience and delivery.
Many restaurants are unlikely to survive if they have to give away up to 30 percent of their sales to ODP partners with average net profits of less than 10 percent. No increase in sales will be able to compensate for this.
At the same time, it appears that almost none of the largest online delivery providers actually report a profit in any of the segments. At first glance, it may seem that the ODPs are the restaurants' partners, friends, or perhaps even saviors by giving them access to the delivery market. But this appearance is deceptive. More and more OPDs are striving to make profits that they can pass on to their investors. For they have financed the rapid growth of the ODPs.
Therefore, in the medium term the ODPs will probably have to try to eliminate the middlemen and become direct competitors of the restaurants by providing meals themselves. This will bring higher margins. Many small and independent restaurants will not be able to survive in this highly competitive market. In the end, it is their kitchens that have to turn off the lights and actually become "dark".
To be successful, the aggregator must be a world-class matchmaker for food orders. It needs a large customer database and a wide range of restaurant menus offered in major cities. For many ODPs, the biggest hurdle to market entry is the cost of customer acquisition. In contrast, they do not need their own fleet of drivers for delivery in this delivery model. The drivers work on a fee basis as independent deliverers with their own vehicles.
6. consolidator - bulk drop system
Yun Ban Bao, a start-up in New York City, targets food desserts for the many Chinese-born residents. It uses direct marketing via the Chinese online service provider WeChat. This creates a separate supply market with the advantage of pre-ordering and pre-payment.
Yun Ban Bao accepts online orders for the next working day and then sends the orders out in a mass delivery model. In this way, the company reduces delivery costs and retains control of its driver fleet. With a fixed delivery network and pre-determined distribution points, often outside of parks, office buildings or homes, this system is more like a bus route than the taxi route model with individual delivery.
7. Aggregator ODP - Owned Fleet
8. aggregator ODP - Dark Kitchen
A Dark Kitchen is also in line with the trend towards the food hall concept, but has no direct customer interaction - no guest ever sets foot in these facilities. In the UK this has been driven by Deliveroo with its urban RooBox or Editions concepts. Partner restaurants rent mobile kitchen space from the ODP and pay a higher percentage fee to cover the expansion costs for their space. The restaurants equip the kitchens with staff at their own expense.
European Food Trends Report 2019
This analysis is part of the European Food Trends Report 2019 of the Gottlieb Duttweiler Institute (GDI) in Zurich. Interested parties can request the report with many more insights at: gdi.ch/eftr19
Future Times: Between growth and losses
Many restaurants are unlikely to survive if they have to give away up to 30 percent of their sales to ODP partners with average net profits of less than 10 percent. No increase in sales will be able to compensate for this.
At the same time, it appears that almost none of the largest online delivery providers actually report a profit in any of the segments. At first glance, it may seem that the ODPs are the restaurants' partners, friends, or perhaps even saviors by giving them access to the delivery market. But this appearance is deceptive. More and more OPDs are striving to make profits that they can pass on to their investors. For they have financed the rapid growth of the ODPs.
Therefore, in the medium term the ODPs will probably have to try to eliminate the middlemen and become direct competitors of the restaurants by providing meals themselves. This will bring higher margins. Many small and independent restaurants will not be able to survive in this highly competitive market. In the end, it is their kitchens that have to turn off the lights and actually become "dark".
