I came across a tweet that said : “Food delivery co's are the AWS of the restaurant business”. The AWS comparison suggests that one could build a food business on top of food delivery networks the way software business could be built on top of AWS.
It’s a conceptually simple to grasp. But, I am not sure that the delivery networks are likely going to be the AWS of food businesses. Competition in the delivery market is heating up. Revenue and market share broken by regions don’t seem to be the right metrics long term to evaluate them. Those numbers can distort our understanding because of their cheap access to capital. It’s likely going to be a combination of acquisition cost, frequency and size of orders, retention period and gross & operating margins that will determine the winners in the long run. I am more bullish on players like Caviar and Uber Eats because they are well run and are not standalone businesses. Food delivery businesses, in my mind, are like media businesses. They are great strategic product units that feed into a bigger cash machine. Due to the heated competition, we have seen everyone from Postmates and Caviar to DoorDash and Uber Eats experiment with all sorts of ways to maximize revenue for the restaurants they work with. A common tactic is what’s commonly known as a dark or virtual kitchen. They are delivery-only food businesses with no storefronts.
The food delivery companies are now facing competition from a new wave of companies that I think could likely become the AWS-like infrastructure companies for food entrepreneurs. These companies are moving down the “restaurant stack” by offering fully managed shared kitchen spaces to food businesses to rapidly experiment and expand without having to incur lot of upfront investment. They enable delivery-only restaurants to use their physical infrastructure and technology to run their businesses. Companies like KitchenUnited and CloudKitchen are basically taking what WeWork does and making it extremely tailored to a specific domain. This wave is the next step in relentless pursuit of making the economics work to unleash a lot more innovation in how food gets made, distributed and eaten.
Key questions here are whether these new businesses can build up such network of shared spaces at scale with viable economics and whether they can be standalone businesses while the delivery network companies experiment with similar concepts. It’s a very interesting space to keep an eye on.