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The Players Technology Newsletter 23.0 — 05/05/19

LET'S ORDER IN!


Hey <<First Name>>, 

A couple of months ago, while riding through NYC, I realized that there was an abundance of vacancies where I’m used to seeing restaurants. In once vibrant neighborhoods and street corners, empty storefronts now stand. What’s happening in large cities globally, and eventually in the broader market is, as personalization becomes the norm, the scale of startup delivery services is pushing the restaurant industry to its breaking point.

Now with a few taps on your phone, you can have whatever your heart or stomach desires and every other global cuisine in between, not to mention delivery options that meet special religious or dietary needs, like kosher or gluten-free foods. Speed and convenience have become paramount. 

The problem is, that as consumers use services like Uber Eats, DoorDash, Postmates, and GrubHub for a greater share of their meals, delivery orders are beginning to replace some restaurants’ core business instead of complementing it. In a Morgan Stanley survey, 43% of delivery patrons said that a meal they ordered-in was replacing one they would have otherwise eaten at a restaurant. 24% of Gen Z'ers order takeout three or four times in a typical week, which is more than any other generation, according to a study released last fall by the International Foodservice Manufacturers Association. 

Initially, delivery services were thought to be complementary to restaurants, and provide an added revenue stream to reach more customers. Instead, low margin delivery orders are exploding and replacing the more profitable takeout orders or sit-down sales. 

Most establishments are pivoting from the basic restaurant business model to better suit the demands of delivery and gravitating towards third-party providers like GrubHub and DoorDash to handle their delivery services.

The rise of delivery has birthed a new turf war amongst the unicorn food delivery apps. In 2016, GrubHub controlled over half the market. It's market share dropped to 34% in 2018, while Uber Eats grew from 3% to 24%. As Uber readies for an IPO, its food delivery arm is now valued at a hefty $20B, and at just three years old, it’s expected to become profitable before the ride-sharing service does. Though it’s still dwarfed by GrubHub, Uber Eats is the fastest-growing food delivery app: It will serve 70% of the U.S. by the end of the year. SoftBank’s $535M investment in DoorDash last year help the app overtake UberEats in US food delivery sales, and, Postmates is expected to IPO later this year putting it in direct competition with GrubHub for meal-ordering customers.

As brick-and-mortar restaurants become mere storefronts for delivery services, a new phenomenon and turf war has started between Uber and its former CEO Travis Kalanick. 

Uber has been secretly piloting a program in Paris where it leases industrial or empty real estate and fits it out as commercial kitchens for restaurants to lease as satellite operations that focus on delivery. These "ghost " or "virtual" or "dark" kitchens, which could also house delivery-only businesses, would be serviced by Uber's UberEats app.

Uber's pilot has not been announced publicly, and its founder and former CEO Travis Kalanick has been similarly secretive with his own entry into the virtual kitchens market. Kalanick announced last March that he had purchased and become CEO of real estate company City Storage Systems (CSS), whose subsidiary CloudKitchen buys and builds ghost kitchens out of distressed real estate. Uber has reportedly confronted Kalanick about his aggressive recruitment of Uber employees for CSS as this gears up to be Part 2 of the Uber vs. Kalanick saga.  

Imagine the transformation of our daily lives as we know it, birthed by Amazon and online retailing, extended by Netflix, and now dinner from a restaurant replaces dinner in a restaurant.

Sincerely,

Rudy

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