The Thin Edge Of Food Delivery

On any given weekday, I can order Sprig or SpoonRocket for lunch while I’m in San Francisco for the day, just with the tap of an app. When I go home back to the Valley, I can have any one of the following services deliver food and dinner to my place: Fluc, DoorDash, Instacart, Postmates, Munchery, OrderAhead. (I’m guessing eventually Square will offer something similar after acquiring Caviar.)

Food, like transport (Uber, Lyft, etc.), is hot because it’s the ultimate daily active use case. Much has been written about this. And, while most of these services can bring you the same level and type of food, how it’s done is just slightly different, with some being more efficient, or more tech-based, than others. For instance, Postmates and DoorDash charge for food from the vendor and then add deliver fees in their own manners, fixed or variable. Munchery, on the other hand, makes its margins on the food because they prepare it from start to finish — here, delivery is not used to extract value. Instacart can pick up ready made dinners at grocery stores, and they build up a margin through annual subscription, dynamic pricing, and using tipping to subsidize the rates for personal shoppers.

Food itself is a big category, no doubt. Groceries, for example, is a $600Bn+ annual market in America alone. So, in one sense, these companies can focus and build out scale (if they get that far) and provide insulation and a consumer interface to many grocers, restaurants, and more. However, depending on where their margins reside, some of them may feel under pressure to expand the “SKUs” they offer to include things besides food. This is why we’re seeing specific retail on-demand delivery services like Deliv (malls) and Curbside (Target). So, another way to look at it is that these are all logistics businesses using mobile as the consumer interface, bringing in SKUs, and starting with a type of item Amazon or Google could likely never deliver despite being a many times a day habit.

The ultimate concern, then, is “Will Amazon and Google just run over these startups?” And, as @jess pointed out below, probably fair to add Uber to this incumbent list as well. I don’t think that will be the case. If anything, it is startups that will be fiercely competing with each other, and some may undercut prices to gain mind- and market-share. Amazon and Google can take this on as loss-leaders, too, but there could be something about the 1099 Economy which taps into a new cultural mindset to favor on-demand wage opportunities in exchange for having control over their time and labor market participation.

The tricky part for me is that Amazon has most everything a household needs and can bring it to most urban customers within set periods of time. Google could do the same at some point, but would take a while. But, neither of them could deliver fresh food in the manner folks in the Bay Area have grown accustomed to, and because of that, this may create a very, very small opening for a new set of consumer brands to emerge. That’s what’s happening now, and the while its too early to tell who will be left standing, the unit economics and margins of each business may give us a clue, though ultimately, I believe the winners will have more SKUs to manage.