Business Fundamentals: On-Demand Food Delivery
MARCH 16TH, 2016
It has never been easier for consumers to get high quality food delivered to their doorstep, on-demand, with a simple tap of an app. As a result, restaurants are seeing increases in revenue, order volume and profits. The success of the various on-demand food platforms has been good for the entire industry, restaurants, consumers and technology providers alike.
Unfortunately, there is a another side to the on-demand food industry. High profile private companies in the sector have disavowed business fundamentals and prioritized short-term growth in order to capitalize on access to late stage private capital. In this race to capture funding and media exposure, these companies have spurned the trust and respect of restaurants and consumers — two essential stakeholders in ensuring the long-term viability of any on-demand food platform.
To inflate the number of restaurants available for delivery on their platforms, these players effectively “borrow” the identities and offerings of restaurants without the restaurant’s consent. This forces delivery upon a restaurant without its knowledge or consent. In fact, in an attempt to actively hide their true intentions from unsuspecting small business owners, delivery training videos shown by one such company explicitly tells drivers NOT to represent themselves as affiliated with any third party on-demand delivery service. Restaurants understand how their exclusion from the process damages the diner experience and the restaurant’s reputation, and are beginning to take action.
A high-profile example of a restaurant taking action against this type of practice is In-N-Out Burger’s pending lawsuit against Doordash. The lawsuit says that “despite the fact that [DoorDash] is in no way affiliated with [In-N-Out], [DoorDash] has advertised, and continues to advertise, that it delivers food from [In-N-Out]’s restaurants” — even displaying a fake In-N-Out logo. “Further, [In-N-Out] has no control over the time it takes [DoorDash] to deliver [In-N-Out]’s goods to consumers, or over the temperature at which the goods are kept during delivery, nor over the food handling and safety practices of [DoorDash]’s delivery drivers,”. This is only one example of many. Restaurants feel taken advantage of, and In-N-Out’s sentiments are echoed throughout the industry.
When platforms work around restaurants, these same platforms need to generate profits via other channels, in this case via consumers. This takes the form of hidden menu markups, service fees and high delivery fees. These pricing increases aren’t always communicated transparently to customers, and typically require consumers to pay a significant premium. In fact, Morgan Stanley analyst Dean Prissman commented in his research titled, “These Unicorns won’t deliver” that, “key private competitors… rely on high consumer fees, making food 45%-75% more expensive” If these ‘unicorns’ marketed their platforms as (and provided) a premium service, this wouldn’t be a problem. However, they do not market themselves as such, and they do not, in fact, provide premium services. Additionally, the lack of transparency in how these costs are passed along to consumers illustrates the unwillingness of these companies to be upfront with consumers. By actively hiding the costs of their services — whether through menu markups or ambiguous fees that magically appear upon checkout — they insult the intelligence of today’s consumers.
So what separates Bite Squad from the rest, and why was I confident enough to invest so much of my Fund’s capital into the company?
For one thing, restaurants and consumers love Bite Squad. When you talk to Bite Squad customers, as well as all the retailers they serve, Bite Squad gets rave reviews. In addition, the company has seen impressive growth in each and every market it has entered. There isn’t a single on-demand competitor that receives better reviews from customers and restaurants alike, and this satisfaction is reflected in Bite Squad’s growth trajectory. It’s partly that growth and consumer/restaurant satisfaction that led Brightstone to invest.
I was also impressed by Bite Squad’s ever evolving driver tracking, ranking, scheduling and dispatching algorithms. Innovative, efficient, logistics systems and scale maximize the efficiency of any delivery pool and results in decreasing incremental cost for each delivery. Bite Squad is able to achieve delivery fulfillment more efficiently than any competitor I analyzed. This means customers get their food faster (typically under 35 min), the food itself is higher quality (because it spends less time with a courier), and delivery costs are minimized. The result is a compelling value proposition to customers and retailers alike.
While technological innovation via on-demand ordering platforms is driving significant benefits to consumers and restaurants, many ‘unicorns’ today are focused on short-term revenue growth, at all costs, without regard to long-term sustainability. It is important to remember that small business owners have a right to their reputations and intellectual property, and customers have a right to clear, transparent pricing.
I believe, customers will choose the on-demand food platform that emphasizes their rights and satisfaction. I believe restaurants will choose the on-demand platform that views them as partners. This is why I invested in Bite Squad, and why I believe Bite Squad will win in the marketplace. It is also why I encourage my friends and family to use Bite Squad instead of the other high profile on-demand food platforms.
