Food delivery services are going through an extraordinary change.
Domino’s Pizza started in the 1960s with three small shops in a suburb of Michigan and has grown into the second-largest pizza franchise in the US, behind Pizza Hut. The company has been riding a wave of global success, currently operating in more than 80 countries and delivering more than one million pizzas a day. In today’s digital age, Dominos is obviously a pizza company but increasingly they are a digital e-commerce company at the same time. With almost 34 million potential combinations of pizza, Domino’s has become an omnichannel retailer allowing its customers to order on an app, by voice, by sending a pizza emoji over social media, or through their television. Using technology to serve customers more effectively is a vital to success. Domino’s fully appreciates that if you can’t move fast, someone is going to make your business nonexistent. They are the leading player in pizza home delivery. Domino’s don’t want to ever imagine being disintermediated by another player processing orders and owning their consumers.
Two models have emerged in the last five years in the food delivery service market: (1) integrated ordering and delivery – serving mid to up-scale premium meals and (2) unbundled ordering and delivery – serving fast food and budget meals. Both models are serving different consumer needs and delivering in different ways but both are using in-app payment solutions. What is common in both models is that a third party handles the customer order and takes the payment. However, in the first model the delivery is fulfilled by the same third party, whereas in the second model the restaurant handles the delivery. Both models have seen and taken advantage of a significant demographic shift in the same period. Today, millennials, all digital / internet natives, are considerably more open to relationships that are focused on origination and sales, such as, Airbnb, Booking.com, Netflix, Uber. These organisations offer a personalised, simple to use, frictionless payment with an emphasis on the seamless or on-demand access to a rich customer experience that is separate from the underlying provision of the service or product. This is fundamental to this extraordinary change in food delivery services.
The leading player using the integrated ordering and delivery model is Deliveroo. Founded in 2012, Deliveroo is a London-headquartered on-demand delivery service that brings high-quality cuisine of premium local restaurants to your doorstep – the restaurant cooks and Deliveroo processes the order, takes the payment and delivers to the consumer’s home. All orders go through a Deliveroo app which presents the menus and processes the customer’s menu selection and payment.
Deliveroo’s total equity funding is now at $200m across four rounds from seven investors. The most recent funding was $100m Series D in November 2015. This gives a reported valuation of around $600m. Established just three years ago, Deliveroo now operates in 12 countries, targeting restaurants that do not have their own delivery couriers. In London alone, it has a network of more than 3,000 self-employed cyclists delivering food for over 2,500 restaurants.
Just Eat and Hungry House, also UK-based online home delivery marketplaces, are disrupting the food and beverage sector by handling the order for the customer, like Deliveroo, but the restaurant handles the delivery to the customer’s home using its existing home delivery arrangements. Just Eat and Germany’s Delivery Hero, which raised $1.4bn from investors, also offer online-delivery apps, but have targeted the less expensive end of the takeaway market. Just Eat appeared on the London Stock Exchange in 2014 and now has a market capitalisation of around £3.9bn (August 2016). Just to put this into perspective the market capitalisation of Easyjet is just over £4bn (August 2016).
Uber, the ride-hailing app that has already caused upheaval in the taxi industry, is aiming for a similar disruption in the food home delivery market. Launching its UberEats app in London and other big cities with an aggressive marketing campaign and free introductory offers.
Expect to see shorter delivery times and an increased range of products; for example, Deliveroo, after unveiling a tie-up with Pizza Express, has expanded its products to include alcohol. Deliveroo is bringing this in partnership with one of the leading wine merchants Majestic Wine and craft brewer and bar owner BrewDog, as well as a range of independent wine merchants and brewers.
New customer propositions and new players are entering the market, such as, the ‘Chop Chop’ app which lets customers in central London order up to 20 grocery products and have them delivered within an hour. Chop Chop is owned by Sainsbury, one of the largest grocery supermarkets in the UK. Sainsbury’s sees Chop Chop as a complementary service to their existing grocery home delivery service. Clearly, Chop Chop, and a similar service from Amazon, called Amazon Prime Now, are serving customers who are cooking at home as opposed to serving customers wanting ready prepared meals.
There have been millions of dollars invested and the level of interest, attention, funding and competition is probably just about to peak before the end of 2016. According to CB Insights, the food delivery start-ups have attracted over $609m of investment across 23 deals in the first quarter of 2016! EDC believe we are about to see consolidation in the food delivery marketplaces and there will be fewer players by the end of 2017, but the winners are going to do well in a growing market.
There are a number of different factors as to why are these players have been so agile in capturing a growing market. Firstly, smart mobile phones enable a new payment paradigm as well as fully personalized customer service. In addition, there has been a massive increase in the availability of widely accessible, globally transparent data, coupled with a significant decrease in the cost of computing power. Allegedly, two iPhone 6s have more memory capacity than the International Space Station. Pre-dot-com boom, the first thing a start-up would do was to buy several computer servers. Today, to gain processing power that can be quickly scaled, a start-up can launch and operate entirely within the cloud.
These marketplaces are expanding and have very low capital investment in payment processing infrastructure which is typically a SaaS based solution for both payment processing and fraud prevention. As these businesses expand internationally the need for alternative (and local) payment options becomes critical for their success. This requires strong back-office omnichannel payments support from carefully chosen and integrated payment service providers. EDC has a number years of experience in this by working with the world’s leading omnichannel retailers.
The scope of omnichannel payment continues to evolve; for example, Apple has recently announced that it was deviating from its heritage as a predominantly closed ecosystem. By opening up Siri, Instant Messaging, and Maps to third-party developers, Apple is well on its way to disrupting its own operating proposition. We have already seen ‘Contextual Payments’ at Uber, when the ride is over you get out of the car and the payment is already processed – this is the ultimate frictionless payment experience. Voice, images and messenger apps are expected to allow for frictionless payment, effectively blurring the lines between the customer experience and the checkout. Apple, Amazon, Google and others are all unlocking opportunities for merchants to seamlessly implement “one click” payment options for the web/mobile web. Image-heavy social media sites like Instagram, Pinterest, Snapchat, and Twitter have all integrating payment using standardised open APIs. Similarly, Whatsapp, Line, WeChat are all processing payments via their messenger platforms.
Voice commands can also be parsed by new home devices such as Amazon Echo and Google Home. So, “Alexa: Order me one Domino’s Pizza 12-inch medium feast pepperoni pizza.” could be heard in your home very soon. To take this one step further look at 3D-Systems, a company that designs, manufactures and sells 3D printers, announced in 2014 it had started working with The Hershey Company, the largest chocolate manufacturer in North America, to explore the potential of 3D printed chocolate. Could this mean that chocolate stores will go out of business? Conceivably in the next 10 to 15 years we could be printing a medium feast pepperoni pizza at home. Just as we have seen Blockbusters, the DVD rental store, has gone out of business as a result of video-on-demand services such as Netflix, are we to expect our streets empty of Deliveroo cyclists; or perhaps our skies will not be full of delivery drones?
Whatever the future of food delivery services has for us, payment acceptance will be integral to any omnichannel strategy.