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Like me, chances are you’ve probably ordered food at least (and I’m guessing conservatively here) once online this month and that you’ve seen more than one food delivery agent zipping by on the roads today. It should come as no surprise then that online food delivery is set to supersize to a hefty $200 billion by 2025.

Let The Hunger Games Begin

The concept of food delivery isn’t new. From ordering telephonically to using dedicated online platforms linked to a particular restaurant, the process of ordering food has become as easy as, well, heating a frozen TV dinner. Over the past 5-7 years, a slew of companies across the world appear to have zeroed in on a new (and now not so secret) magic formula; where earlier versions of online food delivery service were limited to a single restaurant or menu, it is now a veritable buffet, allowing customers access to thousands of restaurants and millions of dishes.

Online food companies are finding to their delight that customers are ravenous for such services. Industry growth rates have skyrocketed as millions of customers have shown themselves more than willing to have food delivered at the press of a button rather than spend protracted periods stirring ladle in pot. In 2018, Frost & Sullivan estimated the industry at $82 billion in terms of gross revenue bookings and is set to more than double by 2025, backed by a cumulative growth rate of 14%.

Online food delivery is already having a huge impact on the dine-in restaurant business. Celebrity chef Jamie Oliver cited online food delivery services as being one of the main reasons his restaurant chain went, ahem, belly-up. Indeed, it’s hard to argue with the prospect of spending an evening at home where one can chill (with on-demand Netfilix) and chow (on your favorite on-demand dinner).

North America is already host to over 10 online food delivery companies with Grubhub, the largest player, accounting for over a one third share of the market. Europe also has over 10 providers, with Dutch company Just Eat having a presence in eight countries in the region, and an over 83% share of the U.K. market. But in terms of sheer numbers, Asia accounts for a massive 55% share of the global online food delivery market, thanks to the Chinese dragon’s seemingly insatiable appetite. China alone registered over $34 billion in online food delivery revenues in 2018, with two of its biggest players, Ele.me and Meituan Dianping divvying up almost 10 billion deliveries between them last year.

Investors Are Bullish About Growth Prospects

But to really understand the growing clout of the online food delivery business, one need only follow the story of one company – Uber Eats. Launched in 2014, the company has grown astronomically across the world on the back of its popular elder sibling, Uber. Uber Eats itself is currently valued at a very healthy $20 billion, registers revenues of $1.4 billion annually, has a presence in more than 670 cities on six continents, and delivers almost a billion meals every year.

This sort of growth—not just for Uber Eats but for almost any of the online food delivery companies successfully operating today—would be impossible without massive investments. In 2018 alone, more than $9.6 billion was pumped into these companies, with Asia receiving almost 60% of these funds. Heavy hitters like Alibaba, Tiger Capital and SoftBank Group have been among the leading investors in this business and continue to be bullish about its growth prospects.

Such war chests have enabled online food delivery businesses to aggressively acquire smaller counterparts in other countries, broaden their global presence, and strengthen their competitive position.

In 2018, the Dutch giant Takeaway.com, an aggressive expansionist, bought out the German business of another major player, Delivery Hero, for $1.1 billion. It also owns leading market players in Greece, Bulgaria, and Romania. As recently as last month, Takeaway.com announced that it was interested in merging with Just Eat, another major global player in the business. This joint entity would be worth almost $11 billion with a combined customer base of over 40 million users and would be the dominant player across Europe.

Delivery Hero has also successfully expanded its reach and has a market share of over 70% in the Middle East market due to its purchase of local brands Talabat, Carriage and India’s Zomato in the region. However, some acquisitions haven’t gone according to recipe; the mobility company Ola bought food delivery company Foodpanda for approximately $45 million in 2017 only to suspend operations in 2019 as it failed to keep pace with the competition.

Everyone Is In On The Action

Everyone craves a slice of this pie, even companies from outside the industry. For instance, fintech firms have managed to generate profits from the online food delivery business by integrating their payment gateways, such as digital wallets, into existing platforms, thereby providing a seamless ordering and payment experience.

Hospitality partners are leveraging extra capacity in hotel kitchens to prepare meals that are ordered and delivered through online food delivery platforms. Companies in the automotive and transportation industry are looking to tap into the tremendous growth potential offered by last mile delivery.

Autonomous technology companies are already using ground robots to make commercial deliveries within closed environments such as university campuses and downtown locations. Nuro, an autonomous robotics company, along with Dominos Pizza, is hoping to commercialize such deliveries in Houston, Texas, very shortly. I believe drone/robot deliveries could be the next wave, given the cost and time efficiencies gained compared to conventional methods that depend on your friendly neighborhood delivery person.

Automotive manufacturers like Ford, Toyota and GM have successfully trialed their autonomous vehicles for food delivery services in the U.S. in what promises to be a flood of autonomous vehicle technology being employed by online food platforms.

It’s A Brutal Business

The fact, however, remains that despite the massive revenues and investments, food delivery companies still struggle with profitability, primarily due to their high rates of cash burn.

Predatory pricing is a widely used strategy to beat the competition where companies swallow a loss on the transaction by significantly subsidizing the cost of the meal. Logistical reliability and product quality are beyond their control as these services are contracted out to other parties. If a customer is unhappy with either of elements, the online food company has to bear the monetary penalty. Lastly, fraud across the value chain—whether through restaurant manipulated ‘ghost’ deliveries or cybersecurity loopholes related to digital payments—is emerging as an increasingly important factor affecting the business. As a result of these trends, several companies have been unable to withstand the heat in the kitchen and have exited the business. What has been disconcerting has been the pattern of failure.

In 2019 alone, U.S. based Munchery shuttered operations after receiving more than $120 million in funding due to an extremely high cash burn rate and over ambitious expansion plans that failed to attract new investors. Hurt by a limited customer base, 5.4, an Australian company delivering bespoke healthy food, closed shop. And, most recently, Amazon Restaurants shut its operations due to intense competition and its inability to improve its penetration in the U.S. market.

Innovating to Succeed

A chef is only as good as his next dish. And similarly, innovate or perish is a credo that will determine the future of online food delivery companies. One such innovative concept that has exploded onto the scene is that of a ‘dark’ or ‘cloud’ kitchens, essentially commercial facilities dedicated to serving online takeaway orders. The significantly lower cost of capital investment required for this setup, as compared to a full blown restaurant facility, enables food to be offered at cheaper rates. Online food delivery companies are partnering with third party businesses that build and/or run these establishments and are even investing in it themselves to prepare food under different brand names. For example, Swiggy in India runs its own cloud kitchen service called The Bowl Company that prepares meals for Swiggy’s delivery business.

Another interesting growth strategy that online food delivery companies are exploring is to take a step backwards on the food supply chain. They are integrating themselves into the delivery chain at the raw material stage, delivering these goods from farmers or producers to warehouses, while also distributing supplies from these warehouses to restaurants and other food preparation businesses.

Zomato, for instance, is aggressively setting up gigantic warehouses all over India to store fresh produce, thereby ensuring that not only are quality standards maintained but also that their food sourcing costs are reduced. The end result is a low cost, high quality meal for the customer since Zomato is the intermediary in all aspects of the meal, from sourcing the ingredients right through to cooking the meal in a cloud kitchen, earning it the industry moniker of being a “full stack” player.

Today, only 11% of the world’s population has access to food delivery platforms. I foresee a heated food fight on the horizon as companies aggressively expand and innovate to grab more bellies and wallets. By the end of the next decade, I believe that it will be more effective—in terms of time, cost and effort—to order literally any type of food one desires and have it delivered to your doorstep by drone/robot, rather spend another tedious evening sweating it out in the kitchen. But then again, you just might not have a kitchen to cook in any more.

This article was written with contributions from Viroop Narla, Team Leader with Business Strategy & Innovation group at Frost & Sullivan, and lead author of a soon to be published study titled, ‘Future of Global Online Food Delivery Services Market.’

Article was originally published on Forbes.com

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