I am supporter of the Big 3.  Many restaurants would not be able to tap into the demand of delivered food if not for them.  We can’t afford to pay our own drivers.  From the beginning, there’s a lot of angst because the companies charge restaurants 15-30% of sales.  It is a lot – but at the margin, it works.  And if one’s ops was designed well, it could work great.  I was careful to tell the panelists that this is not a bash session but to look ahead at emerging alternatives – to which they were spearheading.

However, during our 50-minute panel, some of us got a little heated and visited a lot of the ways where the third party delivery companies have failed us restaurants.  It was a little ‘bashy.’

After the panel, one rep of one of the delivery providers came up and basically said “WTF? That was harsh and why are you bashing us?”  She then told me that she heard others saying the same.  I apologized and told her that it wasn’t my intention but there’s a lot of strong feelings from the little guys.  About 10 minutes later, a rep from another company came up and congratulated me on a great panel – because he hears similar failures every day.  He gets it and he appreciated that we talked about the concrete ways why these alternative solutions are better.  He will take some of that back to incorporate in his relationship with his restaurant partners.  

I can’t help but think about the woman who came up right after the panel.  After hearing the complaints (and potential solutions) by 4 successful restaurant operators, her reaction was “why so harsh?” and not – hmm, maybe there’s something I can take back to the home office. 

Funny Dynamics

Her reaction is in large part because the third party delivery companies treat the diners as the customers (who’s always right!) and the restaurants as ‘partner’ (vendor).  

This dynamic is interesting because we (restaurants) actually PAY the third parties!  In almost all worlds, that means we should be the customers.  Customers pay, vendors get paid.  If the panel was full of customers (i.e consumers) bashing the inadequacy of the delivery providers, I doubt she would rush to the stage, pull me aside, and say “why so bashy?”

This dynamics is exactly why there will be alternative delivery solutions that look at restaurants and drivers as equal part customers and vendors.  

What happens now that we have a “Big 3”?

At the Food on Demand Conference, I moderated the panel “Alternative Delivery Solutions” where the panelists were restaurant operators who have experience starting and running a delivery company.  With the rise and market domination of the Big 3 – Doordash, UberEats, Grubhub (and their related acquired competitors) – there’s a strong thirst to find an alternative.  

So what happens now that we have the Big 3?  As it turns out, my master thesis was based on theories on how industries evolve.  I was lucky that the folks who founded this field of Organizational Ecology - Glenn Carroll and Michael Hannan -taught at Stanford.  My thesis investigated the future evolution of casino and gambling in the US.  I don’t think I would have predicted Peyton Manning pitching for Caesar Sportsbook on TV but I did made a case on the continued legitimatization of gambling (which goes hand in hand with legalization) while the big companies that dominated Las Vegas will continue to get bigger.

It is intuitive that as industries consolidate, the small and scrappy competitor will emerge around the edges serving consumers that are underserved by the dominant players.  You can see that in the beer industry, in ecommerce, and in newspaper.  The big players use scale (and often technology) to defend their space and to continue to define the industry in their terms.

The dynamics certainly is becoming truer in the food delivery space in the US.  Postmates, Caviar, and many others have disappeared into the Big 3 – and even Grubhub was absorbed by an even larger international player.   The edges – as shared by the panelists – are open.  More than anything, the customers – in this case, the restaurants – are actively engaged in the changes ahead.

I’m most interested in the elements that will drive the changes– understanding that the Big 3 will continue to use scale to their advantage.  Another way to ask this question is how customers are underserved.  Many of us restaurant folks would probably point to hospitality as a key element often missing in delivered food.  On the one hand, restaurants are abstracted away from the relationship with the diner (ie. Hospitality). Additionally, the third party delivery companies has chosen to exhibit hospitality to the individual diners (for example, making it very easy for one to complain and get a refund) while not doing so to their other customers – the restaurants.  

Many of the ‘alternative’ delivery companies center around hospitality and seek to drive a more equitable field for restaurants, drivers, diners, and the companies that enable the logistics.  We are also seeing the rise of a hybrid model where more restaurants may start hiring their own drivers again knowing they can offload to third party delivery systems for both peaks and valleys.

The large guys will continue to dominate the market – just as the biggest beer companies commanded 95% of the beer market in 1990.  Today, ‘craft’ beer is 26% with 9000 breweries participating in this market (versus 200 in 1990).  We are in the 90s for delivery market and given what we can see with consumer demand, the market will grow.  The variables that will drive the success of the delivery companies will continue to evolve – scale matters, but other things like hospitality or hyper locality or technology (drones!) will change the equation.