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Speaker 1: Hi Mark, Hey Da. So for those of you listening,

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Speaker 1: what did you have for breakfast today? Well? Me, I

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Speaker 1: had overnight oats with oat milk and blueberries. Oh and

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Speaker 1: uh the dousing of honey of course. But this is

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Speaker 1: actually a standard question people use for sound checks in

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Speaker 1: the industry because it always gets guests warmed up. People

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Speaker 1: always have an answer, even if it's I didn't have breakfast,

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Speaker 1: and it always sparked conversation. You can get a good

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Speaker 1: sound check. But the interesting part here for us today

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Speaker 1: is for our next guest, we changed the question ever

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Speaker 1: so slightly too how did you get your breakfast? So

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Speaker 1: think about how your food got to you today. Did

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Speaker 1: it get delivered by a grocery delivery service like Ocado

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Speaker 1: or instat cart, or did you decide to get some

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Speaker 1: hot food via Uber eat store, Dash or delivery. Or

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Speaker 1: did you have a pretty big night last night and

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Speaker 1: you're eating day old Domino's pizza that was delivered directly

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Speaker 1: from them the night before, whether you realize it or not.

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Speaker 1: In some cases they're vertically integrated with their own delivery vehicles,

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Speaker 1: or they're calling upon the gig economy. So did your

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Speaker 1: food arrived by bike, moped, car, refrigerated truck was powered

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Speaker 1: by pedal power, our electric diesel or unlettered petroleum. So

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Speaker 1: the research note that we're talking about today is biennfs

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Speaker 1: first look at this part of the transportation universe. And

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Speaker 1: with the advent of COVID nineteen and fewer visits to

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Speaker 1: brick and mortar stores, food delivery has become a global

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Speaker 1: phenomenon with many players and modes of delivery around the world.

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Speaker 1: This week on the show, we have Andrew Grant. He's

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Speaker 1: an intelligent Mobility analyst for us at b an e

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Speaker 1: F and our discussion is based on a report titled

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Speaker 1: can food Delivery Services Deliver Profits? BENOF users can get

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Speaker 1: this report on BNF dot com, the BENF mobile app,

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Speaker 1: and the Bloomberg terminal. As a reminder, BENF to stop

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Speaker 1: provide investment or strategy advice, and you can hear the

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Speaker 1: full disclaimer at the end of the show. I'm Mark

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Speaker 1: Taylor and I'm Dana Perkins, and you're listening to Switch

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Speaker 1: on the b F podcast. Andrew, Welcome, Hi, mak Hi, Dana,

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Speaker 1: good to be here. Thanks for joining us. So can

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Speaker 1: you kick us off today with kind of a background question. Really,

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Speaker 1: we're curious of why you are be enough decided to

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Speaker 1: do this note and who's it aimed at? The real

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Speaker 1: big picture. The idea behind it is, as you well know,

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Speaker 1: every year we publish a an electric vehicle outlook or

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Speaker 1: EVO that really encompasses all of road transport. In the past,

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Speaker 1: we focused a lot on how people move around, but

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Speaker 1: we are increasingly looking at the ways that things move around.

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Speaker 1: This is an extremely interesting space at the moment because

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Speaker 1: I know that we you know, as people have started

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Speaker 1: to spend more time working from home and being home,

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Speaker 1: people who would maybe previously not thought that they would

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Speaker 1: use one actually have or trying to. So walk us

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Speaker 1: through what you would consider to be There are three

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Speaker 1: different types of food delivery services. I mean you can

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Speaker 1: cut it a bunch of different ways. Whether that's the

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Speaker 1: items that these services are delivering, so either prepared meals

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Speaker 1: that are coming from from restaurants, a restaurant delivery. It

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Speaker 1: could be meal kit delivery so these or services like

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Speaker 1: Blue Apron and Hello Fresh, where it will be raw

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Speaker 1: ingredients or partially prepared ingredients that are packaged based on

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Speaker 1: a meal plan. And then there's the grocery delivery, which

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Speaker 1: particularly of late most major grocery chains have some service.

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Speaker 1: So you mentioned a couple of different companies here, and

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Speaker 1: I think one of the things that really struck me

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Speaker 1: when I was reading the research note preparing for today

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Speaker 1: was that there is a ton of market consolidation here.

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Speaker 1: So can you walk through the role that that has

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Speaker 1: played in this marketplace and then maybe name a few

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Speaker 1: other companies that you've seen quite a bit of this

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Speaker 1: consolidation with. Yeah, sure, this is a really swiftly growing

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Speaker 1: markets By our instimates, the revenge you generated by food

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Speaker 1: delivery companies globally in ten was dollars. So what we're

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Speaker 1: seeing a lot of his companies trying to expand into

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Speaker 1: other regions to kind of capture market share in those

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Speaker 1: regions where the market is kind of less saturated, and

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Speaker 1: then as the revenue grows in those regions, then they

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Speaker 1: can have a larger chunk of that. But then there's

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Speaker 1: also market consolidation to kind of reduce competition and reduce

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Speaker 1: those costs that companies need to spend in order to

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Speaker 1: promote their products. So some of the companies that have

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Speaker 1: kind of quite aggressively spread out and swallowed up some

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Speaker 1: of their comparitors. These are businesses like just Eat, which

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Speaker 1: was merged with Takeaway dot Com last year. Quite recently,

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Speaker 1: just about a month ago, Just Eat Takeaway also made

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Speaker 1: an agreement with Rubhub, which is the business operating throughout

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Speaker 1: the US and one of the market leaders in the US.

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Speaker 1: So now they really have this kind of coverage that

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Speaker 1: spans Latin America, North America, throughout Europe, and uh and

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Speaker 1: certainly in parts of Asia as well. These are companies

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Speaker 1: that are looking to kind of consolidate bring in a

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Speaker 1: lot of local players rather than starting up operations in

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Speaker 1: those markets. But it seems pretty regional. There's not a

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Speaker 1: global predominant leader, is there. Uh So, I mean, yeah,

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Speaker 1: there are regional champions for sure. When you think about

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Speaker 1: how hyper lo realized transport provision is, it's even more

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Speaker 1: so for food delivery. You've got to have really close

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Speaker 1: relationships with the restaurants in each individual region. So it

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Speaker 1: is quite challenging to kind of have that expertise across

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Speaker 1: the across the globe. These companies that are trying to

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Speaker 1: do that or at least unite a lot of different

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Speaker 1: businesses under one larger umbrella. So the companies I just mentioned,

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Speaker 1: so the the just Eat Takeaway entity and then delivery.

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Speaker 1: Hero Uber's kind of tried this approach in the past,

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Speaker 1: but has run into some challenges with some very strong

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Speaker 1: local competitors, most notably of late that has been in India.

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Speaker 1: Last quarter, they decided to sell off those operations there.

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Speaker 1: It was just proven too expensive to try and compete

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Speaker 1: with the local companies that are strongly tied in with

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Speaker 1: the restaurants, the customers, and the driver base. So the

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Speaker 1: three models you talk about in the note restaurant delivery,

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Speaker 1: meal kit delivery, and grocery delivery, which one of those

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Speaker 1: is the main form of delivery here. The work we've

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Speaker 1: done here focuses on restaurant delivery, so that's prepared meals

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Speaker 1: that are cooked and then delivered in a in a

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Speaker 1: short time frame. Restaurant delivery has a bit of a

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Speaker 1: different delivery structure compared to meal kit. Grocery delivery is

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Speaker 1: a far shorter window of scheduling those deliveries, so it's

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Speaker 1: it's it's a bit different from the other two. There's

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Speaker 1: also a lot of really interesting, well funded and kind

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Speaker 1: of creative companies operating in this in this space, and

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Speaker 1: in terms of market share, I assume restaurant delivery is

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Speaker 1: also the main one of the three. I mean, in

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Speaker 1: terms of market share, it's a bit difficult to say.

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Speaker 1: Grocery delivery it kind of it's difficult to put an

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Speaker 1: actual number on the total market size for that. A

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Speaker 1: lot of companies, particularly the grocery chains, will kind of

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Speaker 1: blended delivery revenue into or not reported explicitly outside of

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Speaker 1: their total revenue. But certainly restaurant delivery is a bigger

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Speaker 1: market at the moment than meal kit delivery. So, Andrew,

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Speaker 1: when I'm thinking of these delivery services, I'm thinking of

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Speaker 1: how it actually physically shows up at my door and

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Speaker 1: the person that I interact with. But in reality, there's

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Speaker 1: so much complexity here. So I think there are a

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Speaker 1: couple of different ways to think about them. So there's

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Speaker 1: the software that actually makes all of this happen in

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Speaker 1: the background, and then there's the delivery people that actually

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Speaker 1: physically make it happen. Can you explain a little bit

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Speaker 1: more regarding the different platforms that exist and how these

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Speaker 1: delivery services work? Sure? And I mean, yeah, you write

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Speaker 1: these show up in your life, on our lives as

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Speaker 1: apps on our phone, But there's two broad categories on

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Speaker 1: how these businesses sort of operate. So there's aggregated platforms

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Speaker 1: which are taking advantage of existing driver fleets and businesses

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Speaker 1: that have the ability to recruit drivers and drop food

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Speaker 1: off at consumers homes. And what the aggregators will do

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Speaker 1: is just it's a digital platform. It's a way for

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Speaker 1: consumers to easily access and order that product. But then

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Speaker 1: the onus for recruiting the driver and then getting the

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Speaker 1: food to the customer is then on the restaurant itself.

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Speaker 1: So in those sorts of situations, the aggregator will typically

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Speaker 1: charger and added fee on top of the meal price,

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Speaker 1: and it will be fairly transparent the delivery fee. Then

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Speaker 1: you've got this kind of new approach, which I say new,

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Speaker 1: but it's sort of I guess as seven or eight

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Speaker 1: years old, where the delivery platform itself is taking on

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Speaker 1: the responsibility of recruiting and finding those drivers. So the

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Speaker 1: delivery platform will receive the order from the customer, they

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Speaker 1: will send that order to the kitchen at the restaurant

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Speaker 1: and say prepare that food. They will find a driver

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Speaker 1: that suits, that suits their purposes, that can get the

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Speaker 1: food and to the consumer and a good time, and

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Speaker 1: then they're responsible for sending that driver to the restaurant

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Speaker 1: and then they can kind of divide up the revenue

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Speaker 1: received from the customer based on the conditions that they've

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Speaker 1: agreed to with the restaurant. So they're they're going a

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Speaker 1: bit beyond just being a digital front for the for

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Speaker 1: the restaurant. Yeah, the question actually has a bit to

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Speaker 1: do with not only how do restaurants make money out

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Speaker 1: of this, but how does the pricing work? So what's

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Speaker 1: the take that the delivery services take from the overall

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Speaker 1: commission and how do they make money? And then additionally,

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Speaker 1: how is there anything left over for the restaurants given

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Speaker 1: that their margins were low to begin with when they

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Speaker 1: were going directly to their customers and now there's an intermediary, right, Okay,

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Speaker 1: So I mean in a lot of cases, they will

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Speaker 1: be an added fee on top of the price that

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Speaker 1: the consumers paying for food within this h sort of

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Speaker 1: meal price and delivery price about ten to to say

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Speaker 1: of that ends up going to the food delivery platform.

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Speaker 1: So unless that delivery fee ends up being quite large,

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Speaker 1: they can be cases where the restaurant misses out. And certainly,

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Speaker 1: as a lot of restaurants have had to rely on

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Speaker 1: a lot of these delivery platforms. Over the last few

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Speaker 1: months in COVID nineteen lockdown measure, that has become an

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Speaker 1: increasing point of contention. So a lot of these food

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Speaker 1: delivery platforms are dropping. They take grade to to kind

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Speaker 1: of accommodate some of these restaurants, particularly the smaller chains,

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Speaker 1: but they're also encouraging other behaviors within the restaurant that

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Speaker 1: would make this type of transport more profitable for them.

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Speaker 1: So that's things like reducing front of house costs or

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Speaker 1: streamlining the kitchen process so that they can make delivery

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Speaker 1: orders specifically at a faster and more efficient rate, so

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Speaker 1: that they can reduce the costs that require in order

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Speaker 1: to to deliver that food. So last year, I've read

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Speaker 1: an article about companies that were starting up just to

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Speaker 1: have kitchens to serve these aggregators and operators, and you

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Speaker 1: mentioned just now the reducing front of house costs. At

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Speaker 1: the time, I thought that's kind of a strange idea,

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Speaker 1: but since COVID it sounds genius, Like are we seeing

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Speaker 1: more of these kitchen only restaurants of hearing? Oh? Yes, definitely,

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Speaker 1: and I mean it's been going on for a few

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Speaker 1: years now. Definitely, pre COVID. But the idea is to

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Speaker 1: not only make the kitchen more efficient and more suitable

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Speaker 1: for delivery purposes, um, it's also to put these kitchens

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Speaker 1: in places that are really suitable for delivery. So you

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Speaker 1: can put them in sort of semi industrial real estate

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Speaker 1: that can be purchased at quite good prices. It doesn't

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Speaker 1: need to be consumer facing, so it doesn't need to

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Speaker 1: have a glossy show front or anything like that. But

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Speaker 1: then an added advantage for these sorts of cloud kitchens

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Speaker 1: is if you've got a popular restaurant brand, then you

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Speaker 1: can extend it to a sort of regions where it

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Speaker 1: wouldn't be possible to provide food from your main restaurant

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Speaker 1: by setting up a cloud kitchen and then offering that

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Speaker 1: that food online through the app. So it's a way

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Speaker 1: for these companies to or restaurants to to offer their

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Speaker 1: service at a reduced cost in regions where they know

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Speaker 1: they have a customer base but that they can't physically

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Speaker 1: get the food there in the in the appropriate timeframe.

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Speaker 1: And do you know of any businesses that are only

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Speaker 1: cloud kitchens and that is their business model and there's

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Speaker 1: no front of house that operates in this delivery space

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Speaker 1: with these companies. Yeah, certainly so. I mean, in that case,

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Speaker 1: we'd call it a virtual restaurant, so a business that

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Speaker 1: really doesn't exist in in the physical world. You can't

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Speaker 1: go there and get food and order food. I've read

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Speaker 1: about this last year. It's a it's a great way

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Speaker 1: for restaurants to test out cuisine ideas. You know, will

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Speaker 1: a chicken place work in this location or will a

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Speaker 1: noodle place work in that location? Right, It's like a

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Speaker 1: comedian testing out new material, exactly, totally. Yeah. So it's cheap,

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Speaker 1: it's easy, and they can test out the audience. And

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Speaker 1: I mean that's a great point. Mark. And when you

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Speaker 1: look at the data and the information that a lot

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Speaker 1: of the delivery platforms have about not only what consumers

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Speaker 1: are ordering in different markets, but things like what are

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Speaker 1: they searching for when they are looking for their next meal,

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Speaker 1: then they've got a really good idea of what sort

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Speaker 1: of restaurants to open up. So in some cases businesses

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Speaker 1: food delivery platforms have gone and opened up restaurant brands

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Speaker 1: that are a direct result of consumers searching for a

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Speaker 1: certain cuisine, and then they can make those recommendations to

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Speaker 1: to make customers about ten years ago. I used to

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Speaker 1: have a food truck. We sold courmet hot dogs. They

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Speaker 1: were amazing. I would have loved to have this instead.

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Speaker 1: The food truck business was hard. I think this could

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Speaker 1: have been easier. Well, you're amount of day to marks

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Speaker 1: that I'm not surprised you know that about Humord. Seriously,

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Speaker 1: you have a personal connection to every episode. Andrew, I'd

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Speaker 1: like to focus a little bit on how these items,

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Speaker 1: How my burrito is physically going to make it to

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Speaker 1: me today. So let's talk about not only the people

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Speaker 1: who are on bikes, mopeds, cars bringing it to us,

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Speaker 1: but also potential displacement. So I think there's been some

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Speaker 1: talk about some technological innovation, either in the form of

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Speaker 1: bots or drones. How likely are those and kind of

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Speaker 1: what spaces does that look feasible? Yeah, so there's a

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Speaker 1: lot of experiments going on. A lot of delivery bots

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Speaker 1: are being tasted. And this can take the form of

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Speaker 1: uh small, less than hip high delivery butts that deliver

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Speaker 1: one or maybe two meals per outing away from the restaurants.

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Speaker 1: But what you're really looking at here is a sophisticated

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Speaker 1: remote controlled car, and by that I mean it won't

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Speaker 1: necessarily crash into anything in front of it, but you

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Speaker 1: still need a human operator to kind of point and click,

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Speaker 1: and they're using the cameras and the sensors in this

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Speaker 1: delivery but to guide this vehicle around. It's a good

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Speaker 1: area to to kind of test out this technology. Then

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Speaker 1: you kind of got the biggest sort of delivery butts

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Speaker 1: that are mirroring the size of a car, maybe slightly

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Speaker 1: smaller than the car, and these will be delivering a

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Speaker 1: bunch of different food orders since the size of the

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Speaker 1: vehicle makes it a bit challenging to do just kind

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Speaker 1: of one order at a time, or it doesn't make

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Speaker 1: the economics great, These types of vehicles will typically be

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Speaker 1: more suitable for grocery delivery or packaged food delivery rather

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Speaker 1: than hot food or freshly prepared food from restaurants. Now,

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Speaker 1: at the moment, the small delivery arts are by far

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Speaker 1: the most prevalent, But what we've seen is particularly in

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Speaker 1: lights of COVID nineteen and the lockdowns, regulators have been

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Speaker 1: far more willing to allow the autonomous vehicle testing for

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Speaker 1: these kind of driver lest delivery pots, particularly in what

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Speaker 1: we'd call that medium segment. So you're seeing a lot

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Speaker 1: more of those on the road, so you'll see more

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Speaker 1: of these things, but it's still quite early days for them.

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Speaker 1: So I want to stay on the topic of the

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Speaker 1: technology and of things, but maybe slightly less cute. Um,

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Speaker 1: let's talk about payment platforms and other synergies that are

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Speaker 1: kind of embedded within these business models. What other things

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Speaker 1: are the delivery services actually providing to their end customers

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Speaker 1: that they've expanded out into. Yeah, so the types of

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Speaker 1: businesses that have really looked at food delivery and said

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Speaker 1: this is something we want to be involved in. That's

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Speaker 1: either been the pure play platforms so say Door, Dash, Takeaway,

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Speaker 1: just Eat takeaway and delivery Hero and say delivery as well.

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Speaker 1: But then there's these businesses that are come from a

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Speaker 1: different area. So somebody like Uber, which is a right

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Speaker 1: hailing platform as you no doubt know, that has looked

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Speaker 1: at the way it operates and some of the business

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Speaker 1: acumen that it has and has determined that food delivery

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Speaker 1: is useful at branch for their drivers. There are some

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Speaker 1: synergies in terms of dispatching and having a good logistics

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Speaker 1: background and being able to manage that part of the

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Speaker 1: interaction with customers. There are some synergies in terms of

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Speaker 1: providing one platform that consumers are familiar with and are

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Speaker 1: happy to use. But where there are definite challenges is

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Speaker 1: around the vehicles that are used in these types of services.

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Speaker 1: It's not typical throughout Europe for food delivery Europe and Asia,

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Speaker 1: I should say as well, for food to be delivered

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Speaker 1: in a four wheel of vehicle, it's typically a two wheeler.

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Speaker 1: That's slightly different in the US where four wheelers are

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Speaker 1: more commonly used for for food delivery. But that's where

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Speaker 1: the kind of the synergy breaks down. It's it's not

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Speaker 1: on a driver by driver pass. It might be possible

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Speaker 1: for a right hailing driver to do some deliveries at

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Speaker 1: lunch and then do some food deliveries in the evening,

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Speaker 1: but typically it's it's not kind of what happens in

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Speaker 1: the aggregate. And then the other types of businesses that

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Speaker 1: are looking at food delivery and wanting to get involved

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Speaker 1: are are the e commerce companies. Now they have a

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Speaker 1: lot of supply chain expertise, they know how to deliver

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Speaker 1: packages to consumers, but the delivery time frame is quite

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Speaker 1: drastically different from what they've experienced in the past, So

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Speaker 1: you don't schedule a delivery a day or two in advance.

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Speaker 1: Consumers want that food on their doorstep within thirty minutes. Now,

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Speaker 1: a lot of the e commerce companies have been improving

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Speaker 1: their service and their delivery time frames, and you can

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Speaker 1: get same day delivery from Amazon and things like that,

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Speaker 1: but it's still not quite the the time frame that

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Speaker 1: you would expect for prepared food delivery or restaurant meal delivery.

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Speaker 1: But it's kind of hitting in that direction and you

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Speaker 1: can kind of see how this would be a natural

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Speaker 1: extension of their business, but they would need added add

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Speaker 1: it cap abilities beyond beyond what they have already. Trying

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Speaker 1: to bring it back to the overall goal of measuring

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Speaker 1: the impact on total miles traveled globally. You're looking at

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Speaker 1: viability or probability of these companies to see which ones

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Speaker 1: are going to stick around for a while. How do

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Speaker 1: you do that? How did you look at whether these

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Speaker 1: companies are viable going forward? So I mean, for us,

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Speaker 1: if they're making money, they'll probably be sticking around, and

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Speaker 1: by making money, if they're actually going to generate a profit.

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Speaker 1: To date, a lot of the food delivery platforms have

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Speaker 1: kind of been hit or miss in this regard. They

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Speaker 1: have been some reports over the quarters, but on the

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Speaker 1: whole it's been, yeah, quite inconsistent, and a lot of

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Speaker 1: companies have been losing money. So we looked at the

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Speaker 1: various ways they could go about improving that bottom line

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Speaker 1: and what we've developed a bit of a score card

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Speaker 1: or for the different companies on on how they've addressed

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Speaker 1: areas like exclusive restaurant agreements so uh deals where they

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Speaker 1: can make sure that they have a good restaurant supply

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Speaker 1: with a strong brand that they can deliver to customers.

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Speaker 1: How they've done things like trip optimization, making sure that

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Speaker 1: their delivery drivers aren't waiting around and wasting time and money.

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Speaker 1: And then things like buying out local rivals and geographic expansion.

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Speaker 1: How how aggressively they've pursued those those areas. So looking

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Speaker 1: at all these different factors that these companies can push together,

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Speaker 1: there's a lot of different ways that they can drive

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Speaker 1: towards profitability. They've got a lot of options out there.

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Speaker 1: Is there a key factor? Is there one telltale sign

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Speaker 1: you've seen is an indicator of profitability? I think without

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Speaker 1: doubt it's the competitive aspect of this. Companies spend a

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Speaker 1: lot of money just promoting their product to consumers and

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Speaker 1: providing subsidies to drivers and restaurants so that they can

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Speaker 1: have them on their platform. As this market has consolidated

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Speaker 1: and we've seen fewer options for consumers as a result,

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Speaker 1: this means that companies can start dropping some of those

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Speaker 1: subsidies that they that they're paying to to operate at

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Speaker 1: these businesses, and that's going to be the biggest impact

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Speaker 1: on the bottom line. Well, guys, I'm starting to get hungry,

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Speaker 1: so I think I need to go order myself some lunch.

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Speaker 1: Not joking. It was great talking to you today, Andrew,

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Speaker 1: Thank you for joining us. Thank you, Dana, Thank you Mark.

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Speaker 1: Today's episode of Switched On was edited by Rex Warner

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Speaker 1: of Great Stake Media. Bloomberguin e F is a service

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