Why Back-end Tech Is Key for Food Delivery Startups
It’s surprising to see how few local delivery startups stand out with their marketing messaging. For the uninitiated customer, what’s the difference between Postmates and Delivery.com, or DoorDash, Caviar, and Grubhub? Their websites have similar closeups of delicious dinners and offer some version of “we deliver food to your house” as copy.
A more enterprising consumer may try each app once, or read a few dozen online reviews. More likely though, a hungry local will hear about a food delivery service from a friend, or will perform a quick Google search to choose a delivery option. If the service is good, maybe they’ll use it again. If not, then there are plenty of alternatives. That’s great for the consumer, but, for startups, putting together enough market share can be an uphill bike-ride.
By my count — and I’m definitely sure I missed a few — there are at least 30 active startups in the food delivery space, and just as many that launched in recent years and have since closed shop. In this article, I’ll look at a few of the forerunners to see how they’re building success in a crowded market with low margins. (I’ve avoided much focus on UberEats, Square’s Caviar or Yelp’s Eat24. These companies are interesting, but their connections with already-established brands help provide a customer base and network of vendors and/or customers, eliminating some of the difficulty that others in the market face.)
Out of the couple dozen startups I researched, Sharebite and Rushorder were unique in that their first-impression top-of-website messaging stood out from the crowd. Sharebite donates a meal for every meal ordered through the app, and Rushorder describes its selection as food “you won’t find anywhere else.” A few others — Crunchbutton, EnvoyNow and JoyRun — target the college market, focusing on late-night and “college food” runs. JoyRun, which allows any student who’s making a “run” to a given store or restaurant to take orders for other app users, has a particularly strong college community feel.
Outside of college campuses, local food delivery startups generally have larger neighborhoods to cover and customers with more niche needs. This may be why some of the biggest names in local delivery don’t seem as different at first glance, because their focus is on the back-end. For these companies, effort goes toward creating a great experience at a decent price, so when customers do land on their app, the ease and convenience of service keeps them there.
DoorDash, which ranks in the top 10-15 apps for Food & Drink in the iTunes store, is one such industry leader. Andy Fang, CTO and co-founder of DoorDash, said the focus on its backend is a purposeful strategy.
“DoorDash is a technology company first and foremost,” Fang said. “Deliveries take place in the real world, so building real-world situations into our technology is incredibly important. For example, bicycles are great for smaller orders like burritos, but don’t work well for delivering pizzas so we have parameters for what types of orders can be offered to different vehicle types. Similarly, a sandwich travels well and can be delivered a far distance, but ice cream will melt quickly, so we limit the delivery radius for certain types of food. Other factors like kitchen capacity, order prep times and even the time of day are all incorporated into our algorithm to make sure we’re providing fast, efficient and high-quality deliveries every time.”
DoorDash isn’t alone in its prioritization of technology. Drizly, an alcohol delivery service built out a marketplace by connecting with local vendors. Drizly charges local retailers for bringing them customers, then lets retailers set the delivery cost.
Drizly Co-founder & CEO, Nick Rellas, also considers his company tech-first: “We do not identify strictly as a delivery service — we’re a technology platform committed to delivering a superior shopping experience for consumers. Unlike many other services, the delivery fee structure is set by each store, ranging from zero to $10.”
In the fall of 2016, Drizly launched a public-facing marketplace, which lists the cost of many brands of wine, beer and liquor in various neighborhood stores. This new feature allows customers to choose between cost and wait time.
“The biggest risk for us was not the consumer or our technology, but the retailers accepting this change in model,” Rellas said. “To their credit, retailers stepped up in support of a new type of marketplace where consumers win. They know that if Drizly is successful in being the best place to shop for alcohol, the retailers will be successful too.”
DoorDash and Drizly’s focus on technology first is very Silicon Valley: If it can’t scale, how will investors make their millions back x10? But so many real world factors go into making local deliveries, and that’s where local delivery startups have run into trouble.
As a company solely focused on delivery, you have a lot of overhead — you have to pay the delivery staff, and there are consequences for paying delivery personnel on the cheap. Then add costs for developers, marketing, support and executive teams. That’s a lot more than a restaurant doing delivery may have. At the same time, justifying this cost to consumers can be difficult.
If restaurants make margins from food markups, maybe this is a possible funding source for food delivery startups. Some companies, like DoorDash, did mark up food they delivered, until customer complaints and transparency pushes from competitors forced them out of the habit. But what about food delivery startups who make their own meals? A final twist on the food delivery model subtracts local restaurants but adds in-house chefs and food supply logistics. Good Uncle, Sprig and Freshly are among the cornucopia of companies in the “our kitchen to your table” space. Good Uncle, which brings Brooklyn recipes to smaller cities like Syracuse,; found a way to stand out in secondary markets, instead of competing for marketshare in New York or San Francisco. And Sprig beat out competitor Spoonrocket in early 2016, largely due to the quality of its food.
Gagan Biyani, CEO and co-founder of Sprig says that having control of the entire product makes a huge difference, and that’s reflected in the way he thinks about his company’s mission.
“We uniquely benefit from being vertically integrated, so control everything from the sourcing of ingredients and recipe creation, to cooking the food and delivery to your door, which allows us to deliver a higher level of quality and value at a competitive cost,” he said “We see ourselves as a food company first, with this vertical integration powered by technology.”
Food first sounds like a higher quality experience. And Sprig’s meals do look mouth-watering. But the added benefits of in-house food production have costs too. Recent leaked documents from Maple, another high-quality meal delivery service, show low margins that were mostly achieved by cutting food costs and back-of-house labor. Lower quality fare is the same decision that led to Spoonrocket’s downfall.
When you’re dealing with real-world materials and constraints, no app can scale without real-world costs. But as Drizly’s Rellas pointed out, the fewer real-world variables you’re dealing with, the easier it is to build out a platform.
“Marketplaces, generally speaking, work best with commodity goods,” said Rellas. “Amazon in books, Kayak in travel, Drizly in alcohol. The idea is that you want to buy a product — in our case this is a bottle of wine, and that bottle of wine is the same no matter where you get it from… Industries like food and restaurant are much harder because they’re not commodities. Thai food from 3 different restaurants, while it may be the same dish, is not a commodity.”
Perhaps survivors of the food delivery rush will be apps like Drizly that focus on fungible items. Postmates announced on Jan 25th that it’s also moving into the alcohol delivery market, which may be a step in this direction. Or maybe food and drink delivery companies will find more ways to make technology work for them, such as selling aggregated data to restaurants or advertisers, so the financial burden does rest solely with the consumer. And it’s always possible that consumers will come to better understand the cost of a food delivery — that we’re paying for convenience as well as a snazzy back-end.
Megan Hannay is the CEO of ZipSprout, an agency and tool service that helps brands connect with grassroots-level opportunities for SEO and local marketing campaigns. Megan also hosts The Zip, a weekly podcast on the ecosystem of local.