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Please provide an overview of the restaurant delivery/logistics space. I'm working with a company named Olo (a restaurants logistics/delivery company) on a branding exercise and we'd like to better understand the market.
Hi there! Thanks for your question about the restaurant delivery/logistics space. The short answer is that the food delivery market size is $92.96 billion as of 2016. Key players in the market include Tillster, ChowNow, Zuppler, and others. Below you will find a deep dive of my findings and methodology.
METHODOLOGY
I began my search by looking for information on the market size and current state of the market. I did this by looking for market reports, coming across McKinsey's 2016 state of the market report for food delivery. From there, I looked for additional reporting on the current market, as well as major players within the market. I also researched Olo to familiarize myself with what kind of platform it is. Using this information, I triangulated the most relevant information on the overall market, focusing on three primary categories: market size, the current state of the market, key market players, and trends and drivers within the market. Information on key players was gathered through Owler, Crunchbase, and DataFox. Revenues, foundation dates, and headquarters locations were gathered through Owler. Information for the company description was gathered from each company's website
MARKET SIZE
McKinsey's 2016 report on the food delivery market explains that the "market for food delivery stands at €83 billion ($92.96 billion), "or 1 percent of the total food market and 4 percent of food sold through restaurants and fast-food chains." The report estimates that the overall annual growth rate will be 3.5% for the next five years. In terms of online-specific platforms, McKinsey estimates that "online delivery to grow by 25.0 percent per year from 2015 to 2018 in key markets, after which it will taper off to 14.9 percent per year until 2020."
In terms of platform usage, "once customers sign up, 80 percent never or rarely leave for another platform, creating a strong winner-take-all dynamic, in which the reward goes to the player who can sign up the most customers in the shortest amount of time."
CURRENT STATE OF THE MARKET
According to the McKinsey report, the "traditional" delivery model "has a 90 percent market share." The traditional model refers to a situation "in which the consumer places an order with [a local restaurant] and waits for the restaurant to bring the food to the door . . . and most of those orders—almost three-quarters—are still placed by phone." However, the remaining 10% of the market is primarily composed of online food delivery, split into two primary categories: (1) aggregators and (2) "new-delivery" platforms.
Aggregators "emerged roughly 15 years ago" and "build on the traditional model for food delivery, offering access to multiple restaurants through a single online portal." The restaurant pays for the fixed margin the aggregator is being paid for each order, and the restaurant handles the actual delivery of the order. According to McKinsey, aggregators' "asset-light model" has given them EBITDA margins of 40-50%.
New-delivery platforms emerged in 2013, allowing "consumers to compare offerings and order meals from a group of restaurants through a single website or app." Unlike aggregators, new-delivery platforms facilitate the actual delivery and logistics for the restaurant. The new-delivery players "are compensated by the restaurant with a fixed margin of the order, as well as with a small flat fee from the customer." New-delivery players have EBITDA margins of upwards of 30%.
Overall, research shows that 82% of online food-delivery orders are placed at home, compared to the 16% of orders that are typically placed at work. Additionally, 74% of weekly orders were placed on Friday, Saturday, and Sunday.
In terms of investment, "international inflows of capital to the food delivery category dropped 69 percent in Q1 ’16, and then dropped another 49 percent in Q2 ’16."
MAJOR PLAYERS
Exhibit 3 of McKinsey's report on the food delivery market lists the market valuations of major international players like Just Eat, GrubHub, Delivery Hero, Deliveroo, Takeaway.com, and Foodpanda.
Companies operating in the same space as Olo include Tillster, Chownow, and Zuppler. Below is some brief information on each company.
Founded: 2006
Headquarters: San Diego, CA
Service Description: Tillster is a service that provides solutions for online and in-store ordering, marketing, data and analytics, and technology platforms for restaurants. National clients include California Pizza Kitchen, McAlister's Deli, Baskin Robbins, and Zaxby's.
Founded: 2010
Headquarters: Playa Vista, CA
Service Description: Chownow offers built-in ordering system solutions for a restaurant's website, facebook page, and iPhone/Android apps. ChowNow offers a flat rate rather than a pay-by-commission agreement. They also offer ChowNow Flex Delivery, a system that allows restaurant owners to "tap into the world's largest network of delivery drivers."
Founded: 2009
Headquarters: Conshohocken, PA
Service Description: Zuppler gives restaurant owners easy migration from a web-based ordering system to a mobile ordering system. The system provides customizable analytics. Clients include Boloco, Cousin Vinny's, DIEP, and Protein Bar.
Additional Key Players
MARKET TRENDS AND DRIVERS
There are several trends that changed the way that consumers purchased and ordered food, especially since the $500+ million invested in food delivery start-ups in 2014. Forbes explains that consumers are becoming "brand agnostic," meaning that companies like Amazon "own the customer experience and the brands they offer have little or no relationship with the buyer." Forbes explains that "because of the sophisticated online tools, consumers no longer care which [services] they [use]." Rather, retailers are losing their "relationships with food shoppers to brands like Instacart and Uber Eats who are making the retailer or restaurant practically invisible as they continue to offer choices from multiple outlets."
Enuke, a software and product development service, provided information on online food delivery/logistics trends. They explain that mergers and acquisitions are likely in the future for the online ordering future, citing the Seamless and Grubhub merger and Foodpanda's acquisition of Delivery Club. They also note that online ordering systems will change, moving toward providing customers a "wide variety of choices, alternative payment options, reviews and ratings."
Enuke's research explains that "the most [necessary] tool to compete will be implementing an evolving customer responsive business model by claiming to give the best quality or speedy delivery or best deals or [some combination] of these."
Fast Company describes one of restaurant delivery's latest trends, the "ghost" restaurant. These delivery-only locations, specifically Leafage and Butcher Block in New York City, are "virtual eateries created by a company called the Green Summit Group that operates several food-delivery services out of central commissaries in midtown Manhattan, Brooklyn, and Chicago." Ghost restaurants are delivery-only and "skip the storefront [to] bring food straight to the customer." Other examples include Munchery and Good Uncle. In particular, Green Summit has "an exclusive agreement with Seamless/Grubhub for delivery," thereby ensuring that every customer ordering from one of its restaurants is using the Seamless/Grubhub platform. In light of the fact that 80% of consumers will stick to the same platform they are familiar with, these ghost restaurants can provide major opportunity. These restaurants do not have to provide seating or waiting areas for their customers and instead require just a kitchen to "operate a viable restaurant business with a minimal footprint."
ADDITIONAL FINDINGS
In terms of online traditional model ordering, "McKinsey research shows that just 26 percent of traditional-delivery orders are made online today, [though they] expect this share to increase rapidly."
McKinsey estimates that "the addressable market for new delivery will reach more than €20 billion ($22.40 billion) by 2025."
In 2015, GrubHub and Just Eat "each reported marketing budgets of about €70 million ($78.4 million)."
Morgan Stanley Research explains that the "core addressable restaurant spend [is] $210 billion, [while] online food delivery comprises only $10 billion" totaling to only "'“1/2 the penetration of e-commerce and 1/8th of online travel.' By those metrics, online food delivery is unequivocally 'still in its nascency.'"
CONCLUSION
In short, the market size is $92.96 billion as of 2016. Tillster, ChowNow, and Zuppler are a few primary players. Research suggests that there might be more mergers or acquisitions that will take place in the market, while new opportunity has been found in the new wave of delivery-only "ghost" restaurants.
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