Innovation and new business models in online food delivery industry

With consumers resuming their pre-pandemic ways, online food delivery businesses have experienced lots of ups and downs in 2022. Throughout the year, shutdowns, layoffs, and consolidations have been the major trends around the world, and the same is projected to further continue from the short to medium-term perspective, as businesses face severe macroeconomic headwinds and inflationary pressure. As inflation continues to rise to a multi-year high in most countries around the world, user growth experienced by food delivery businesses has slowed down, while the number and average value of orders have also declined significantly. For instance,

  • Deliveroo and Just Eat Takeaway, the Europe-based food delivery platform experienced a decline in their order growth in Q3 2022. The rising cost of living is the major reason behind the drop in order volume for these firms. In October 2022, Deliveroo stated the tough market conditions for a 1% year-on-year drop in orders globally in Q3 2022.
  • Furthermore, the firms also reported a decline in active monthly users during the quarter. Notably, the user number was down from 7.8 million in Q2 2022 to 7.3 million in Q3 2022. Alongside Deliveroo, Just Eat Takeaway also reported a decline in order volume. For Just Eat Takeaway, the order volume declined 11% year on year during the quarter.
online delivery service

online delivery service

In 2022, food delivery platforms are under immense pressure to show that they can generate profits for investors. Consequently, to boost their earnings, some firms like Deliveroo are also raising their delivery fees at a time when restaurants are also increasing their menu prices. It means that getting food delivered to the home is becoming expensive for consumers.

Furthermore, to combat inflation pressure and other macroeconomic challenges, many of the leading food delivery platforms around the world are innovating with their service offerings to improve the value proposition for their customers and restaurant partners. For instance,

  • In October 2022, DoorDash, one of the leading online food delivery services in the United States, announced that the firm had launched a pilot project testing in-app reservation service on its platform. Powered by the reservation platform SevenRooms, the pilot program is available for DoorDash users in New York and Chicago. The launch of the new service comes amid the evolving needs of consumers and merchants. While consumers are going back to in-restaurant dining, smaller restaurants are seeking more value propositions from their online delivery partners in the country.
  • Deliveroo, to offer more value and purchasing power to its users in the United Kingdom, announced a partnership with Klarna, the buy now pay later provider, in October 2022. The partnership will allow consumers to order food delivery and pay for it later. This partnership comes at a time when consumers are finding it difficult to fund their grocery and food-related purchases due to surging inflation across Europe and the rest of the world.
  • On the other hand, to create an easier onboarding process for restaurants, Uber Eats announced a strategic collaboration with Toast and Clover, thereby allowing restaurants in the United States and Canada to join the platform directly through point-of-sale providers. The integration will also ensure menu accuracy. In its bid to reach more customers, the firm also rolled out a voice ordering mechanism and launched a nationwide shipping service in 2022.

The investment from both DoorDash and Uber Eats to create more value propositions for customers and restaurant partners is aimed at building long-term loyalty and gaining a competitive advantage. Notably, the launch of the in-app reservation service might offer DoorDash a competitive edge over other third-party restaurant delivery services, as they currently do not offer any such value proposition. While it remains unclear if the firm will roll out the reservation service across the nation, the launch of the feature is a clear indication that DoorDash aims to become a technology platform that connects consumers with the best of their neighborhoods.

In addition to creating more value for customers as well as restaurant partners, these players are seeking to drive additional revenue by launching their own-label products in a bid to reach profitability. For instance,

  • In October 2022, a Turkish-based rapid grocery delivery platform announced that the firm had entered into a strategic collaboration with Nisa Retail, thereby introducing 300 Co-op own-label products. Notably, the own-label products include fresh meats, ready-to-eat meals, and fruits and vegetables. Apart from increasing the product choices for consumers, the own-label products will also boost the profit margins for the firm, thereby driving additional revenue.
  • Furthermore, to increase its market reach in the European region, Getir also forged a strategic alliance with the Dutch meal delivery platform Just Eat Takeaway. Under the collaboration, Just Eat Takeaway will list the more than 2,000 products offered by Getir on its marketplace. Initially, the service is launched in the German market, however, a broader rollout across the European region is expected from the short to medium-term perspective.

Like the launch of a private-label product announced by Getir, a similar strategy was adopted by Gorillas, a Germany-based on-demand grocery delivery platform. For instance,

  • In June 2022, Gorillas announced that the firm is entering into the business of private-label products in a bid to drive revenue growth and reach profitability. The firm launched a total of 50 private-label products in four key European markets, including the United Kingdom, Germany, France, and the Dutch market. The launch of the own-label products also plays out the sustainability strategy for the firm. All of the products and packaging manufactured by its partners are committed to sustainability.

While firms are innovating with their service offerings and launching private-label products to boost margins, the trend of consolidation is expected to continue from the short to medium-term perspective. Notably, to cut down the losses, some of the firms are shutting operations in markets where competition has grown significantly. For instance,

  • In November 2022, Deliveroo, the United Kingdom-based food delivery platform, announced that the firm is closing its operations in Australia. Citing the challenging economic conditions behind the decision, the firm has announced that it cannot reach a sustainable and profitable business in Australia without making a significant investment in the country. Before closing its operations in Australia, Deliveroo also pulled out of the Netherlands and Spanish markets earlier in 2022.

All these online food delivery platforms are adopting innovative strategies to revive the growth of their business, which has been impacted by economic challenges, including inflation and higher interest rates. While most online food delivery businesses are grappling with macroeconomic challenges, players in the Middle East are expected to record strong growth in Q4 2022. For instance,

  • The 2022 FIFA World Cup is hosted by Qatar and therefore, promises to bring millions of fans from around the world to the Middle East. As a result, takeout is expected to grow significantly during the World Cup games, which will result in higher order volume for players operating in the region.
  • Food delivery orders are expected to experience a surge of 55-70% during match days in Qatar. However, the increase in order volume is not just limited to Qatar. It is expected to spill out across the region, with a large chunk of the incoming fans expected to stay in the United Arab Emirates, due to the limited availability of rooms in Qatar.

In preparation for the FIFA World Cup and the arrival of millions of fans, food delivery platforms are launching innovative campaigns and participating in various events and initiatives. For instance,

  • Talabat, one of the leading online food delivery platforms in the Middle East region, launched the Together We’re Unstoppable campaign to show its operational readiness as millions of visitors are scheduled to arrive in Qatar. Furthermore, being the official sponsor of the Qatari national team, the firm is taking on several initiatives, including the Lusail Winter Wonderland. At the event, the firm will provide fans with an easier way to order food from booths, thereby allowing them to enjoy the game more rather than queuing up for food. Along with Talabat, Deliveroo, Snoonu, and Table 1 are among the other players that are projected to gain from the massive influx of football fans in the region.

While the sector is facing severe headwinds from the macroeconomic challenges, and the trend is expected to further persist over the next few quarters, building long-term loyalty by offering more value propositions to both customers and restaurant partners will help players to weather the storm.

However, from the short to medium-term perspective, delivery platforms around the world are expected to remain under pressure, as restaurant partners continue to price their products more aggressively due to rising inflation. This will create an impact on the conversion rate for food delivery platforms, as consumers are expected to take a more measured approach amid the rising cost of living.

Comments are closed