More twists and turns ahead in the global delivery journey

The media is not short of analysis of why Amazon has shut its US restaurant delivery business – and what it could mean for the long-term shape of delivery globally, writes Peter Martin, Vice President at CGA.

Amazon announced last week that it was pulling its Amazon Restaurant and Daily Dish services, and only months after being among investors who injected US$575m into Deliveroo, the leading UK delivery specialist.

Fierce competition in the US and the tech giant’s inability to win any significant share of the American market against the likes of GrubHub, DoorDash, Uber Eats and Postmates are seen as the main reasons for its decision. Amazon shut its London delivery business last November.

Fortune magazine says those four maintain a 93% share of the US market. Nonetheless, Amazon’s investment in Deliveroo, which comes with a seat on the board, will still keep it close to developments, especially in the UK and Europe where Deliveroo is expanding fast.

As Forbes magazine noted: “Deliveroo doesn’t have a presence yet in the United States.” Deliveroo US might be an option down the road, but as one Wall Street analyst speculated the tech giant is more likely to acquire, rather than build its own delivery business in the US in the future. Amazon’s US experience is however likely to keep the heat on Deliveroo to create and sustain a dominant position in every market it enters.

Forbes observed that Deliveroo chief executive Will Shu had told a Bloomberg technology conference that his business wanted to reach half of the UK’s population by the end of this year, up from about 33% now, meaning expanding into some smaller markets, where food delivery is less common than in big cities.

Deliveroo would also continue to expand in the other 13 global markets where it has operations, including France, Italy, Spain and Dubai. The company’s Italian business is currently its fastest-growing, Shu told Bloomberg.

Fortune magazine noted that the big four US players are only getting bigger. DoorDash is currently raising $600m and is now valued at $12.6bn, leading in sales in five of the 10 largest metro areas: San Francisco, Washington DC, San Antonio, Dallas Fort Worth and San Diego. Grubhub dominates New York with 68% of delivery sales, and well as leading in the Chicago and Boston metro areas. UberEats leads the pack in the Miami metro area.

UberEats, which had revenue of $1.46bn last year, recently partnered with Starbucks and McDonalds, and parent Uber is also adding Uber Eats directly to the main Uber app. DoorDash is working with Chipotle, Chick-Fil-A, The Cheesecake Factory and Papa Johns, while Postmates, which is seeking an IPO, joined forces with Popeyes. Grubhub has teamed up with Yum Brands owners of Taco Bell and KFC. In the UK, Deliveroo recently revealed that KFC is the biggest part of its business everywhere except for parts of London..

Meanwhile, Adweek quoted Bryan Eisenberg, co-founder of the agency BuyerLegends and co-author of the book Be Like Amazon, as not seeing Amazon’s retreat as a failure: “At the end of the day, they win by having data. The question is did they get enough data to know what they need to do next? My suspicion is they are not giving up on the model of food delivery. The question is what’s the next step to doing it right.”

Adweek also quoted Bill Duffy, research director at Gartner, as saying there were five reasons Amazon Restaurants didn’t work this time and those would need to be done differently to successfully re-enter the market: it didn’t have enough monthly active users; it needed a better app; it needed to invest in better online search capabilities; it needed restaurant partnerships; or its own restaurant-specific network.

Duffy said the market was seeing different relationships emerge as restaurants worked more closely with delivery suppliers or staked out their own platforms.

The ideal scenario, Duffy said, was pizza chain Domino’s, which owns the entire supply chain and can maintain quality of delivery as well as the entire revenue platform. “That’s a major logistical operation that’s hard to pull off, but we see some moving toward that model,” he added.

He said Gartner had seen a slight increase in brand-owned delivery, pickup and tools on restaurant apps and websites. Examples included bakery-cafe chain Panera, which is offering its own delivery service after initially working with third-party couriers.

In the UK the relationship between restaurant owner and delivery supplier in a low margin arena is one of the sector’s thorniest questions, with worries over who owns the customer relationship and consumer data to the fore. The big question is whether UK restaurant groups are willing or capable technologically to own and operate the delivery channel themselves?

Bryan Eisenberg said he expected Amazon would acquire a car company like GM once its value dropped and then, instead of selling cars, it would offer an on-demand service like Zipcar—and then use those vehicles to make deliveries when not in use by customers. Left field perhaps, but he maintained: “Jeff Bezos (Amazon’s boss) wants pieces of every retail dollar one way or another.”

So watch this space.

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