This is the latest in LSA’s Skate To Where the Puck is Going series. Running semi-weekly, it examines the moves and motivations of tech giants as leading indicators for where markets are moving. Check out the entire series here.
The on-demand delivery wars aren’t a new phenomenon, having emerged and evolved with the on-demand economy of the past half-decade. But they seem to have heated up in the past few months including some consolidation, developments, and Amazon’s looming threat of entrance.
Taking those one at a time, we’ve seen consolidation that could expand capabilities and signal more competition. Just Eat and Takeaway.com announced a merger to compete with Uber Eats and Deliveroo, creating a combined market cap of about $10 billion. And Doordash acquired Caviar from Square.
Elsewhere, Uber Eats continues to push forward on a few initiatives that indicate its eventual directions. And this is obviously meaningful (or scary, depending on where you sit) in terms of its well-funded coffers and resulting ability to sacrifice margins to gain market share.
For example, it expanded its 11-market coffee-delivery partnership with Starbucks nationwide. This essentially builds on its existing network effect of drivers. Adding coffee delivery can share sunk costs of trips underway while carving out additional revenue to caffeinate the masses.
Speaking of deep pockets and margin, Amazon is the sleeping giant in food delivery. As a company that specializes in delivery logistics — and expands into adjacent sectors quickly and ruthlessly — could food delivery be its next conquest? It already has Amazon Fresh of course but what about prepared meals?.
One signal is in the cloud kitchen trend. This involves kitchens that are purpose-built for food delivery. Given growing volumes of food consumption fulfilled via delivery (signature on-demand economy), streamlined cloud kitchens could optimize food-delivery logistics and economics.
Back to Amazon, its interest is signaled by the $575 million investment in Deliveroo — a big cloud kitchen proponent and practitioner. This investment could essentially be Amazon buying itself an education in cloud kitchens, potentially leading to eventual first-party deployment.
It fits the profile: Cloud kitchens possess a few Amazon-esque qualities. The purpose-built and cost-efficient setup (less overhead and polish than a traditional restaurant) aligns with Amazon’s signature margin compression. As Jeff Bezos likes to say “your margin is my opportunity.”
Moreover, cloud kitchens are essentially fulfillment centers for food. Fulfillment center logistics is something that Amazon knows well. It also has a network of food-based locations in optimal geographic clusters which could support such an operation. They’re called Whole Foods.
Like with Uber, there’s a certain network effect Amazon can build upon. Just like Uber has drivers crisscrossing urban areas — a sunk cost upon which it can associate additional revenue — Amazon could look gain similar economies of scale from existing delivery trucks and stores.
There are a few implications for SMBs. First, Amazon’s signature margin compression could be scary for local restaurants who can’t compete on price in the same ways. Second, they’ll be further compelled to use software to improve those margins through better logistics.
The second point is supportive of SMB SaaS startups — everything from delivery management to payment processing. Or, just like Amazon Go compelled “retail as a service” startups like Standard Cognition, could we see a sort of “kitchen as a service” local category emerge?
We’ll be back in part II of this series to expand on the cloud kitchen phenomenon.
