The hidden cost of food delivery

Noah LichtensteinContributor
Noah Lichtenstein is the founder and managing partner of Crossover, a diversified private technology fund backed by institutional investors, technology execs and professional athletes and entertainers.

I’ll admit it: When it comes to food, I’m lazy.

There are dozens of great dining options within a few blocks of my home, yet I still end up ordering food through delivery apps four or five times per week. With the growing coronavirus pandemic closing restaurants and consumers self-isolating, it is likely we will see a spike in food delivery much like the 20% jump China reported during the peak of its crisis.

With the food delivery sector rocketing toward a projected $365 billion by the end of the decade, I’m clearly not the only one turning to delivery apps even before the pandemic hit. Thanks to technology (and VC funding) we can get a ride, laundry service, car wash and even booze or marijuana delivered to our home or office at the push of a button. And the implicit trade-off we all make as consumers is that we are willing to pay a little extra for the convenience of having things delivered to our doorstep.

But while consumers have signed on to pay a premium for convenience, the food delivery ecosystem suffers from a lack of differentiation, compounded by an opaque and confusing web of markups and fees. In their quest to achieve profitability, today’s leading food delivery apps have thus far focused their innovation around new ways to charge consumers for the same items instead of innovating on differentiated products or services. Aside from a handful of exclusive delivery partnerships with a few premium restaurants, consumers are instead faced with a delivery market where the services are virtually indistinguishable, yet the price they pay for exact same item from the exact same restaurant can vary by 20% or more depending on the app they use.

Over the past decade we have seen a new wave of industry-leading technology companies emerge by focusing on innovation in otherwise commoditized markets, from financial services to consumer products. Buying stocks? Ordering a razor? Getting a prescription filled? From Robinhood to Dollar Shave Club to PillPack and beyond, today’s leading consumer companies have won through innovation and pricing transparency.

Competition between delivery companies with billions in funding is fierce, and with so much of that capital going toward chasing top-line growth through promos, discounts and other give-aways, innovation on core product has fallen by the wayside. In spite of the billions already invested into the food delivery sector by venture capitalists and massive growth projected in the years ahead, we believe that the industry is still in its infancy, and remains ripe for innovation. The ultimate winners will be those companies that achieve profitability and market leadership through the delivery of not just food, but better products, better services and transparent pricing.

Food delivery: The pricing matrix

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