By José del Barrio, CEO and founding partner at Samaipata Ventures
A few weeks ago Techcrunch reminded us of something important: there is still a 210 billion dollar opportunity in the food tech market. Yes, despite all the skepticism generated by falling international investment in the last quarters, the truth is there is still much to discover and much to invent in the way we eat. In fact, food is still largely under penetrated by the Internet. Restaurant delivery still shows half the penetration of e-commerce (5% vs. 10%) and 1/8 if we compare it to traditional e-sectors like travel (with an impressive Internet penetration of 41%), according to a Morgan Stanley Research report from June 2016.
Since I first started analyzing the food market whilst working in consultancy at PwC, the disruption has been constant, especially during the past 5 to 7 years. Plenty of models have emerged throughout these years, and even if some have struggled to stay, many others have succeeded. Indeed, the food market is huge, and we refuse to believe falling investment means everything has already been said. That’s exactly why during the past months we have been busy at Samaipata mapping the food delivery industry in detail, to understand where it’s coming from and where it’s going to.
In an effort to somehow systematize such an immense and diverse market, we found two key variables that we believe group most of the operating and scalability challenges of any food delivery model. First, where the service is situated in terms of the value chain (groceries vs. ready-to-eat) and second, the promised delivery time since order placement (super-fast < 30mins vs. subscription models). In between, dozens of multiple combinations are possible. Although the market is of course much larger, and the players in it are in constant movement, the following table looks to simplify our view of how the market is organized:
One first thing jumps out: there are two big, distinct segments opposite each other, one at each corner of the matrix. At the bottom left, subscription/long scheduled groceries models and at the upper right corner, on demand ready-to-eat alternatives.
The first group (long scheduled groceries) produces larger tickets per order and is more prone to subscription models, making operations easier to plan and thus lowering logistics costs as a percentage of basket size. The second group –the ideal world for non-cooking consumers, where everything is on demand, ready to eat and as convenient as possible– is more complex logistically, and consequently, more costly. But this doesn’t make it less attractive; on the contrary, more and more competitors are moving towards it, including huge ones like Uber Eats, Amazon Prime Now or Deliveroo, and smaller ones like our portfolio company Jinn, an on demand delivery, not limited to food.
In between these two extremes, dozens of different models are arising, looking to grab the best from each of the two clusters. A good example is Foodchéri, another of our portfolio start-ups, specialized in almost ready-to-eat lunch meals, especially for businesses people. One of the key advantages behind this value proposition is it can simplify logistics, by offering cold almost ready-to-eat food, bringing down logistics costs. And like the rest of models, one of the cornerstones is to achieve user recurrence.
But as we were saying before, the market is all but static and changing consumer habits and technological innovations will keep on pushing disruption.
Here are a few keys trends we see driving this change:
The Internet of things (IoT):
Imagine you don’t even need to think about what you want to eat today? Better, imagine your personal device knows what you most want or need to eat based on the calories you are consuming and how many you’ve burned, and orders almost without consulting you? Intelligent devices not only add convenience for the consumer; they also help businesses move towards subscription models, making operations much easier to plan ahead, and thus more cost-effective.
The autonomous vehicle:
A few weeks ago Uber’s self-driven truck Otto delivered its first payload: 50000 Budweisers in Colorado Springs. We might still have to wait a bit with food, especially for intercity deliveries, but we’ll definitely end up getting there. Besides improved logistics, transportation costs will be enormously reduced (also turning variable costs into fixed ones), opening the door to brand new models, many of which we can’t even imagine for the moment.
Healthy food and other niches:
In a market as large as food, some segments are yet to be attended. As heart disease or obesity rises in every developed market, consumers have no option but to adopt healthier eating habits. But in the process they don’t want to lose out on convenience, and this is where a niche arises: healthy and convenient food delivery options. The US has already taken the lead with relevant market players such as Freshly or Munchery, but there is still much space to explore in Europe. This particular niche could be attended by chef-to-cook models –essentially marketplaces that bring together chefs and customers who want the restaurant experience at home– but for now the liquidity is limited.
Finally, there is much to innovate as well in the way these businesses operate. Some models are working on being the fastest at delivering, others at integrating as many business operations as possible. Others are coming up with something radically new. Whichever the company’s bet is, there is still much to disrupt to overcome traditional as well as new operating challenges.
So where is this all going? We would be a tad bold pretending to know, but what we can’t deny is there will sure be changes. Every model has its strong points and its challenges, it’ll be interesting to see what new ways we find to solve these trade-offs. Exciting times are ahead us.
At Samaipata, we are always looking for ways to improve. Do not hesitate to send us your thoughts. We strive to partner with early-stage founders and to support them in taking their business to the next level. Check out more ways in which we can help here or for all our other content here
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