The Challenging Future of On-demand Food Delivery: Will Amazon Conquer this Segment too?

By Kerri Adams, Editor-at-Large

Online ordering

The initial rapid success of on-demand food delivery platforms influenced hundreds of entrepreneurs and investors to gravitate to this segment. Many of these food tech start-ups started off well-funded, but quickly the market became crowded with so many options for consumers to choose from. With the fierce competition in today’s digitally-driven market, these food tech companies are having trouble surviving.

Ultimately, this challenging time will either make or break the biggest food delivery services in the industry. There are some major players left in the game, but which one will emerge as the “Uber” of on-demand food delivery? Will it be PostMates, DoorDash, GrubHub, Caviar or Amazon?

The Beginning

In 2003, on-demand services were seen as revolutionary. Apple was at the forefront of this service when it launched the iTunes Store. Netflix launched its on-demand movie and TV show platform in 2007. Amazon cornered the e-book on-demand market starting in 2008 and Uber launched in 2009 with on-demand transportation services.

The restaurant industry was late in the game. PostMates launched in 2011, but the focus was on local goods, not restaurant delivery. Then GrubHub and Seamless merged to offer food delivery services in 2013.

Quickly, other food tech companies sprouted to try to get a piece of this profitable pie. This is when on-demand food delivery transformed into a billion-dollar industry.

What do Customers Want from On-demand Food Delivery Platforms?

Today’s consumer has higher expectations. Not to mention, they are busier and rely heavily on apps to make their everyday activities easier.

“With the slow growth in the economy and real job growth many are forced to work two or more jobs. When restaurant delivery services or delivery of prepared meals are available the convenience factor is going to be attractive and offer viable relief,” said Bill Bender, FCSI consultant and founder & principal of W.H. Bender & Associates, a restaurant & food-service consulting firm.

With that being said, convenience is key. But, consumers are also more interested in higher quality food options.

Previously, it was a hassle for a consumer to grab their favorite meal, especially at casual dining options. They had to call the restaurant directly, order 20+ minutes in advance, then travel to the restaurant to pay and pick up their lunch. Their lunch hour would be just about finished depending on how long this process took.

But now, thanks to third-party food delivery services, there is an array of food options available at their fingertips.

“On-demand food delivery platforms offer the customer a wide variety of dining options while allowing the restaurant to reach a customer that they might have missed without shouldering the added financial cost of liability, risk and added payroll,” said Adam Lamb, restaurant consultant, coach and chef.

Sure, there were restaurants that delivered previously. But, third-party on-demand delivery services made it easy for operators who didn’t offer a delivery service to start doing so.

“Our goal is to take all the complexity out of delivery for the restaurant staff and let them bring in a new revenue stream while focusing on doing what they do best: making great food,” said Michelle Cheuvront, the national general manager lead at Caviar (Square) who spent 10 years with Seamless Web from its founding and now leads the local markets for Caviar.

These services aim to make things easier on both sides, it gives both the operators and customers a user-friendly platform.

But then again, for customers it’s more than having an easy system to use, they want a grand restaurant selection.

“We've found that customers appreciate quality, choice and ease of experience. Customers love Caviar because we've built a truly curated list of restaurant partners - offering some of the best restaurants in every city - many of which are places that didn't previously offer delivery, or are places that people are willing to wait in line for,” said Cheuvront.

What Stops Consumers from Ordering?

The concept of on-demand food delivery is great one. However, here are what consumers are often disappointed in when using these platforms.

Extra Fees

The convenience of these services can cost much more for the customer. The fees can sometimes even double the order and then there is the tip for the driver. Using these services regularly can get costly.

Long Waits

Most of these on-demand platforms haven’t perfected quick delivery times, like the 10 minutes or less delivery promises made by many fast food pizza joints. UberEats attempted to do an instant 10 minutes’ delivery in New York in March, but a month later this service was quickly shut down.

Not Enough Options

Not every local restaurant is offering delivery or using one of these third-party delivery platforms, so depending on the app and location, the restaurant options can be limited. If none of the restaurants strike the customers fancy, they often choose not to order. The selection of restaurants available will heavily influence a customer to order through these on-demand websites or apps.

Is this the Beginning of the End?

So why are so many third-party food delivery apps all suddenly starting to struggle to survive? Besides the common consumer complaints mentioned above, delivery costs are outweighing the revenue per order, especially in the Indian market. India used to be a hub for these food delivery apps and the future looked bright for these food tech companies last year. But this year is a totally different story.

“Now there are hardly 10 left standing,” said Harshvardhan Mandad, the co-founder of TinyOwl, a food delivery start-up closing up shop, to Bloomberg.com. Mandad said there were 80+ startups the previous year.

Indian food tech startups aren’t the only ones struggling.

Tech Crunch has referred to the impending demise of this segment as “the on-demand apocalypse” when SpoonRocket, a meal delivery startup that distributed its own prepared meals shutdown in mid-March.  

Yet, the third-party services offering restaurant food delivery provided by DoorDash, PostMates, Caviar, UberEats, GrubHUb and Yelp’s Eat 24 and now Amazon are very much alive. However, becoming the front-runner in this market is not going to be easy.

What the Future Holds

As if the competition in the restaurant delivery realm wasn’t strong enough, Amazon just announced that it would be partnering with over 350 NYC eateries on meal delivery. This service is now available in 10 cities through Amazon Prime’s delivery service.

Amazon’s service includes no fee on these orders, but the user must have an Amazon Prime membership, which costs $99 a year or $10.99 a month.

Screenshot of Amazon Prime Now Offering in NYC | Foodable WebTV Network

Screenshot of Amazon Prime Now Offering in NYC | Foodable WebTV Network

With the e-commerce mogul expanding this service without delivery fees in one of the biggest culinary cities in the world, will the already established competitors in the market be forced to change their fees?

Amazon’s service only favors the customer though. The customer may not have an upfront fee, but Amazon charges the restaurants a whopping 27.5% on each order. This is roughly double the percentage that the other third party on-demand delivery services charge.

“Amazon might be creating a stir right now with zero delivery fees, but from an operator's perspective the 27% charge back may prove to be a deal breaker versus a service that charges an up-front fee to the customer, while leaving the restaurant's slim margin intact,” said Lamb.

At the end of the day, Amazon may have trouble recruiting a restaurant and or keeping them by taking this big of a cut of the order.