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Meal delivery services being forced to trim the fat
Meal delivery has been a trendy business idea, with food companies using mobile technology to create opportunities. But some startups have recently found that it’s the old-style challenges that have proven to be stumbling blocks.
Last month, in a blog post on its website, delivery service Feast announced it would stop its delivery service in Toronto.
In early October, Uber Eats stopped its instant lunch delivery service, and in September, Just Eats tweaked some of its delivery boundaries.
“I love the delivery concept, but I couldn’t see the economics working,” said Feast CEO Steve Harmer.
His company used bike couriers to deliver healthy, chef-prepared meals from its commissary kitchen on the east side of downtown Toronto. The company served more than 60,000 meals during its 10-month run, and got good reviews for both its app and its food, but it’s now focusing on catering and wholesale.
“We got a lot of positive response on the experience,” said Harmer.
But when he did the math of the average order size, the number of orders per day, and potential growth compared with the cost of delivery, “it was just hard to see an easy path to profitability.” As a result, the company laid off 12 people from its delivery team.
Other factors played a role, according to Harmer, including consumer habits in Toronto as compared to New York or San Francisco, particularly around lunch, as well as what customers feel is a fair price for delivery.
Uber Eats’ decision to stop its Instant Delivery points to similar findings. The service appeared popular during the summer, when the company didn’t charge a delivery fee as it tried to convince people to try the service. The company has not commented on its decision to shut down Instant Delivery in several markets. However, it did announce last month that in certain U.S. markets, Uber Eats will now also have surge pricing — higher-priced rates during inclement weather or where other issues arise — similar to Uber’s ride-sharing app.
Just Eats is the market leader and the only national player, and even it is tweaking its delivery zones, with a notice on its website warning users the area may have recently changed.
According to Canadian marketing director Aaron Davis, the company wants to guarantee consumers free or a $3 delivery charge, which is lower than most of the competition.
“We don’t dictate to our restaurants where they deliver — that’s up to them — but some may have shortened their delivery radius as quickly as possible,” he said.
Wider delivery areas cost more, both in gas and customer satisfaction.
“We constantly look at our delivery zones for those restaurants that we do manage delivery for,” said Davis. “We want to make sure people aren’t waiting 80 or 90 minutes for their food.”
In 2014, the rush was on to invest in food delivery companies, with more than $600 million (U.S.) invested in North America, but that is just one slice of the pie.
While just-in-time delivery (like Feast and Uber Eats) and on-demand delivery (like Just Eats) were once hot, now it is meal delivery kits and services that are surging.
These services either provide boxed meals or food that requires minimal effort to finish off before eating. Projections show that this market will grow to $3 billion to $5 billion (U.S.) by 2020.
Meal delivery is “an interesting business, but I think companies live and die around their ability to scale. We see players like Sprig leaving the Chicago market. Uber Eats has done different iterations in different cities and are fine-tuning that model,” says Eric Thoreson, principal at Technomic, a food market analysis firm based in Chicago.
“Realistically, it’s a numbers game . . . You really need to hit a critical mass to make it work.”