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Can a newcomer disrupt the food delivery market?

Lyft has been making noise about getting into the delivery market. They started with a partnership with Grubhub. And they're thinking they want to start their own service.

Last week we had Bob McNulty from TripDelivers. TripDelivers just launched in Nashville, with plans to launch in other markets around the country. In the interview, Bob mentioned Atlanta and Houston as two potential new markets.

Both are looking at what they claim are very different ways of doing things. Are they different enough to disrupt the food delivery market? Do either of them have what it takes to change everything for Grubhub, Doordash, Uber Eats, Postmates and others?

Red Disrupt ball amid several plain Status Quo boxes
Newcomers to food delivery are claiming new and innovative approaches. Can they truly disrupt the delivery market?

A market needing disruption

2020 has been a crazy year of opportunity for delivery companies. Thanks to stay at home suggestions and orders, delivery has taken off. People who never would have thought of using services like Grubhub or Doordash are relying heavily on them now.

Restaurants have been forced to shut down or severely limit their in seat dining. They need to rely on take out and delivery to survive.

Doordash appears to be the delivery company that has benefitted the most of all the delivery companies. According to this report, Doordash has surged to capturing nearly half of the delivery market share by mid year 2020.

Grubhub, formerly the dominant king of the market, has dropped to a 17% share. Uber Eats has held pretty steady for a solid second place.

All of them have had a huge increase in orders and revenue.

And they're all losing money. Doordash revealed in their IPO paperwork that they've lost $149 million so far this year.

And everyone seems to hate them all now

Birds on a wire keeping their distance from Grubhub, Doordash, Uber Eats and Instacart
Customers, restaurants and drivers seem to be united because of one thing: They see Grubhub, Doordash, Uber Eas, Instacart and others as a common enemy.

Customers are getting frustrated. The food isn't arriving on time, or it arrives in horrible condition. Sometimes it just doesn't arrive at all.

Drivers are pissed. Delivery companies have hired so many drivers that even though things are busier, there are more drivers out there than orders. Things are slowing down and delivery fees are dropping.

And the restaurants? The best way to put it is that they see delivery companies as a necessary evil. I feel like there's a universal sense among restaurant owners that they've been exploited by these delivery companies.

I'm not sure that's a good sign for the future of an industry when the people who need you the most think of you as an evil.

The copycat nature of the primary delivery apps.

Illustration of man with a great idea and four copycats stealing the idea
Doordash, Grubhub, Instacart, Uber Eats, Postmates and others all seem to be copycats of one another

In our conversation leading up to the podcast, I think Bob McNulty put it quite well. He said the thing is that everyone has come in copying one another. They all use pretty much the same business model.

He's right. I don't think anyone has differentiated themselves in how they do things. They all seem to do the same things:

Hire independent contractors. Pay them a delivery fee and rely on the tips from the customers.

Set up an ordering platform, market the food, and then charge the restaurants a substantial commission

Charge the customers a substantial delivery fee.

Offer fair to poor results, primarily because you're not allowed to control the end result of the delivery as much as you need, because of using independent contractors.

And oh, by the way, lose a TON of money in the process.

Someone new with a new approach could be ripe for taking over the market.

I said this a year ago. In Episode 51, I offered up the secret to total market domination as my Christmas gift to delivery companies.

No one took me up on it.

What was the secret? To actually deliver on what you promised.

Pun somewhat intended.

My theory was that if someone could put together an awesome product (their delivery), they could take over the market.

Because the thing is, every single one of these major delivery companies suck at actually delivering food. All of them.

They're horrible.

Wanna know how I really feel?

Even with Doordash seeming ready to take over the delivery world, the end result is still terrible. The app crashes are as bad today as they've always been. Driver satisfaction is at a low, and so is customer satisfaction.

Someone could mop up.

Could Lyft Disrupt the Market?

Care Share parking area with reference to Lyft entering delivery.
Could a company like Lyft, who has focused strictly on rideshare, disrupt the market by branching into delivery?

Lyft has ventured into delivery in a couple of ways.

Grubhub and Lyft entered into a partnership this year. Lyft Pink subscribers could get Grubhub Plus membership as a perk in their subscription. This provided an opportunity for Lyft drivers to make some money on deliveries.

Earlier this year Lyft launched a pilot program that offered ways to deliver essential items. They took a different approach, in that deliveries would only be ordered by those they partnered with. They made the decision to not be customer facing.

In their latest stock holder conference call, Lyft announced they were looking into expanding into offering their own food deliveries.

Can it work? Or is Lyft going to be just another Me-Too delivery company?

So far, the information that I'm hearing is that Lyft wants to differentiate themselves by how they handle the relationship with the restaurant. They are acknowledging that what the other delivery companies charge in commissions is pretty high.

Here's how I understand how Lyft will do things.

The idea here is that Lyft will offer delivery to the restaurants. It will be much the same way that they offer essential item deliveries in their pilot program. The restaurant requests the delivery, and Lyft drivers complete it.

They don't appear to be planning to set up an online portal where customers can place the order. Customers will have to order through the restaurant. Lyft simply provides the delivery.

Cartoon of several identical business men walking in a line with one saying "Emphasize our unique differences, pass it down"
Is Lyft going to be different enough from other delivery partners, or will their similarities in the use of independent contractors get in the way of disruption?

But is this the differentiation that is needed?

I don't think it is.

They're responding to an issue in the restaurant industry: Delivery companies are pillaging the restaurants with high commissions.

But are they actually meeting the need?

Where's the value proposition in this approach?

I've talked with restaurant owners and managers. They're frustrated by the commissions. So why do they put up with it?

Exposure. Marketing.

Doordash, Grubhub, and Uber Eats give them access to customers who never would have used them before. Restaurants were somewhat okay with barely breaking even, or even taking a loss at times, on a food delivery offer.

That's because they could get their food out to a new customer. In a way it's a free form of marketing – they don't make money but they don't spend extra money.

Why I don't think Lyft will make a dent.

Lyft's main value proposition is, they'll do delivery for cheaper. That's about it.

That might work for a short while, when restaurants are desperate for ways to keep going.

But once you get on the downside of this pandemic, that becomes less of an issue. Most of these restaurants aren't here for delivery to be their primary business model.

The value they offer their clients is getting the clients in the door. It's the experience, the presentation. Delivery doesn't provide that.

If Lyft isn't getting new clients in the door, I'm not sure they're bringing enough value to make it worth adding just another delivery company.

The other issue is, will they just be another crappy delivery service? I don't see how they can be anything BUT another crappy delivery service.

Lyft uses independent contractors. Just like any of the others, they're not allowed to dicate what offers anyone picks up. They're not allowed to dictate a lot of things.

I think it's just the nature of the beast, that when you can't control the outcome and the process, you can't really offer anything that works any better than everyone else.

Could TripDelivers disrupt the market?

Word cloud centered on the phrase Business Model
TripDelivers comes in with a unique business model. They completely upend things in how they relate to the independent contractor and how they relate to the restaurant

I'll admit. I'm very intrigued by TripDelivers. This is a brand new entry, coming kind of out of nowhere.

I also have some major reservations.

TripDelivers comes in with a very different model. It's different enough that it could be disruptive. It's a different approach to how they involve contractors. They have a different way of working with restaurants.

There are pieces to what TripDelivers does that could be extremely disruptive.

That said, some of the same issues that I see for Lyft could get in the way with TripDelivers.

Here's how TripDelivers is different

To understand how TripDelivers is different, we'll look at what's the same about all of these delivery companies.

TripDelivers is doing a lot of things differently.

They still use independent contractors, but the structure makes it look a lot more like a true independent contractor relationship. Drivers are set up with a merchant account, and payment for the delivery goes immediately to the driver.

The payment the driver receives is exactly what the customer pays for delivery. As Bob explained it, the payment processing is set up in such a way that you could pretty much say the customer is paying drivers directly. Trip never touches the money themselves.

Payment for deliveries looks to be much better with Trip than the other companies. From what I've seen, the starting point is at or above $5 and goes up substantially for each mile you have to drive.

Have you seen the $2 and $2.50 offers from Doordash and Uber Eats?

The relationship with the restaurant is different.

In the same way, TripDelivers sets the restaurants up with a merchant account, where they get paid immediately for the order.

The restaurant controls the prices that are charged. Trip doesn't mark them up but the restaurant can choose to do so.

There is no percentage commission. The restaurant pays a flat fee of $3. They can opt in to a membership for a monthly fee and the flat fee drops to $2.

Trip doesn't hang on to the money like other delivery companies. They don't charge nearly as much for doing the deliveries and they let the restaurants remain in control of the process.

TripDelivers also has a pretty involved referral structure.

TripDelivers referral model symbolized by several figures saying "referral" and labels showing how customers, restaurants and drivers refer one another
TripDelivers has a very involved referral structure, with drivers, restaurants, and customers all able to refer one another

You can sign up drivers and get a commission off their monthly fees.

You can sign up a restaurant and get a commission if they go with a membership fee. On top of that, you get 40 cents per delivery that is done through that restaurant.

You can sign up customers and get a little bit for each order they place.

Restaurants can sign up other restaurants, drivers, and customers, and get commissions accordingly.

Everywhere you turn around, there's a referral fee available.

Is TripDelivers too good to be true?

To be honest, I don't know.

If everything they say they're doing is done well,

I can tell you there's some pretty scathing stuff about them out there. I think that's something worth being aware of. There's some pretty strong criticism from the rideshare community related to where they first ventured into rideshare.

One criticism I see is that they are often compared to a multi level marketing set up. Drivers do have to pay a monthly fee. That is pretty different and some will see that as a red flag.

The elements where you can get recurring commissions based on what happens through the people or restaurants you can recruit does make you think of what they call “downline” in Multi Level Marketing. In MLM it's often more about recruiting others than actually selling the product.

I admit, I wonder about the math.

Person trying to figure out the TripDelivers math noting that customers and restaurants pay less and drivers earn more.
Customers pay less, restaurants pay less, drivers get more. Something about the math of it all seems off.

Drivers make more.

Customers pay less.

Restaurants aren't getting plundered by commissions and fees.

Compare that to the status quo. Delivery companies charge service fees along with the delivery fees. They plunder the restaurants for 30% or more of the sale price, and often are marking up the menus to boot.

And they're still losing millions of dollars.

How is it possible for TripDelivers to charge a lot less to the restaurants AND to the customers, pay the drivers better, throw around all that extra referral cash and commissions and stay in business?

It costs money to manage all the deliveries. It costs money to operate the tech. This is not an inexpensive thing to operate. I'm just not sure the $3 per delivery from the restaurant and the $39 or $99 a month from drivers is going to be enough.

I don't know. Maybe it's that if the customer is paying the driver directly, that's one thing that takes away the cost. And if they do an awesome job at developing the word of mouth approach, they don't have to sink nearly as much into marketing and restaurant acquisition.

When I look at all that, I do wonder if, with so much less flowing into the company, can they really handle things well operationally? Especially on a larger scale?

Here are my thoughts on all the criticisms on the payment model and such.

I don't have a problem with paying a monthly fee if that monthly fee gives me an opportunity to profit more when all is said and done.

Think about this: Most of your McDonalds and Applebees and Subways that you deliver to are franchises. Someone locally owns that store. They pay a fee to corporate for the right to run the store under the corporate name.

Running my website, I live in a world where you get commissions when people sign on to programs.

So the things about how they're structured and how the model works, I don't have a problem with that.

As long as they are willing and able to deliver what they are promising.

Can TripDelivers Disrupt the Food Delivery Market?

One jet flying vertically disrupting the smoke trails of several other jets flying horizontally.
TripDelivers' ability to disrupt is going to depend on whether they actually provide a quality delivery system to go with their unique business model.

From a driver standpoint, if they do what they say, the model is pretty disruptive.

From a restaurant standpoint, if they do what they say they will, the model is pretty disruptive.

The biggest question is: Can they do what they say they will do? WILL they do what they say they will?

Logistics is going to be the key to if they can disrupt.

The restaurants are going to love it if they pay less. But if the food isn't getting delivered, if it's late, if service is crappy, if everything is inefficient, that restaurant owner isn't going to give a crap about it being cheap.

Cheap doesn't make up for a bad reputation from an unhappy customer.

I mentioned earlier that the challenges that Lyft will have to being able to disrupt could be similar to Trip's.

There were two issues that I brought up with Lyft:

  • They weren't going to bring in business for the restaurants
  • Their use of independent contractors means they can't control quality very well.

These two things can work against TripDelivers as well.

I'm not sure how much business they'll be bringing to their partner restaurants. If done well, they can be very strong on helping restaurants grow their word of mouth. But is it enough to make it worth doing?

How will TripDelivers be any better than anyone else when it comes to using independent contractors? You cannot control the means of how the work is done when you use contractors, and that's been the achilles heel for all of these companies.

But I still haven't answered the question completely, have I?

That's because I don't know.

There's a lot I like about how TripDelivers is set up, on paper.

But I have to see how well they work, how well they actually handle deliveries, and how good they are for drivers to work with, before I can recommend them to a restaurant or to a driver.

If they handle the logistics okay, that's a big step. Honestly I don't think anything better than okay is possible with an independent contractor model.

If they are committed to offering a real delivery product and put the effort into making it an awesome experience for those involved, they could really make a difference.

I honestly don't know how committed they are to pulling off a real, quality delivery service. I don't think you can know until they have a track record. The fact that they really are off the ground in Nashville is a step in the right direction.

Personally, I have to see how they are in action. If they really are who they say they are, it could be intriguing.

I think the real disruptor hasn't shown up yet.

A globe surrounded by trucks, delivery vans and a drone delivering packages
If anyone wants to disrupt the delivery market, they'll have to do it through excellent logistics.

I'm still convinced that the one who really disrupts the market is going to be whoever can deliver logistics. Ther's another semi-intentional pun there.

Go check out my Christmas gift episode. I geeked out a lot on that idea.

Everyone so far has approached this from a marketing standpoint. It's all been about building volume and size. It's about trying to get food out at scale in a way that minimizes labor costs, which is really difficult because the delivery model is extremely labor intensive.

One driver going to one restaurant, waiting for one order of food, and driving it to one person.

That's not logistics.

Get someone who comes in first and foremost trying to figure out how to get more orders done with less people. Show me a company that can control the process and produce much more timely and efficient deliveries. Get a delivery company that produces satisfaction with the restaurant and the customer.

THAT company will disrupt the delivery industry.

Can it be Lyft? TripDelivers? Chomper? Clustertruck?

Think about this one: Grubhub was strangely silent on the whole Prop22 thing. Justeat takeaway, who's set to close their purchase of Grubhub next year, has announced they want to move away from the gig worker model.

Could Grubhub be planning to totally upend how they do things here?

Pass the popcorn. This will be fun to watch.

Could this help someone else? Please share it.