Compared to the disruption of the last few years, 2022 has been a fairly stable one for retail. But one segment of the market seems to be suffering far more than others. Food delivery businesses, which proliferated throughout the pandemic, have been slowly falling into administration or pulling the plug on their operations. The grocery delivery app Send fell into administration in May, followed by Voly in November. Meanwhile, UK-based Deliveroo has announced its exit from the Australian ma
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Compared to the disruption of the last few years, 2022 has been a fairly stable one for retail. But one segment of the market seems to be suffering far more than others. Food delivery businesses, which proliferated throughout the pandemic, have been slowly falling into administration or pulling the plug on their operations. The grocery delivery app Send fell into administration in May, followed by Voly in November. Meanwhile, UK-based Deliveroo has announced its exit from the Australian market. These exits were abrupt and immediate, with both Voly and Deliveroo simply disconnecting their respective apps while making public announcements that market conditions weren’t right for their businesses to thrive. In Voly’s case, the founders said they could no longer attract new capital investment given the volatility in the market, and Deliveroo vowed it would no longer operate in countries where it isn’t already a market leader. “This was a difficult decision and not one we have taken lightly,” said Eric French, COO of Deliveroo. “Our focus is now on making sure our employees, riders and partners are supported throughout this process.”So, what went wrong?A difficult balanceOne of the key issues that all three players faced, as well as some others in the market, is their lack of diversification and scale, Mal Chia, director and co-founder of Ecom Nation, told Inside FMCG. “When you contrast [these businesses] to Uber, for instance, Uber has multiple facets to their business – it does food delivery, but they also do ride-sharing, as well as couriers, and they do freight in the US,” Chia said. “There are multiple parts of the business that offset one another, and it means the riders aren’t just waiting around to do food delivery – they’re also doing other things, so it’s easier to keep them engaged and on the road.”This creates a more stable environment for workers, as they are able to diversify their own income stream within one business, and it keeps customers in contact with the business across multiple needs. According to last-mile delivery firm Drive Yello’s founder and chief executive Steve Fanale, the 10-15 minute delivery times promised by many quick-service operators are incredibly challenging to sustain without a huge level of capital injection.“Voly and Send tried, and Milkrun is trying, to compete directly with major corporations such as Woolworths and Coles, however, their key differentiator of delivery in 10-15 minutes isn’t sustainable,” Fanale told Inside FMCG. “These companies never had a viable economic model. They had a lot of costs … and tried to solve the problem by throwing cash at growth, however their growth was never going to be fast enough to counter the burn needed to sustain the business.”Supermarkets have been partnering with food delivery companies for some time, as well, but are largely focusing on offers that better suit their customers’ behaviours. For instance, Woolworths’ launch of a one-hour delivery service Metro60, as well as Coles’ Rapid Click and Collect, which promises a one-hour turnaround on orders and will one day be linked to delivery partners, such as Uber and DoorDash.According to Fanale, Milkrun could very well be the next company to fall victim to the unsustainable nature of this model, given the current funding climate. When you can’t buy, DIYUniversity of Sydney Business School senior lecturer Dr Alex Veen said that as the cost of living continues to increase throughout 2023, it’s likely that the on-demand form of food delivery we’ve enjoyed in the past few years will become somewhat of a luxury. “A lot of people might just start going into the store themselves to pick up their groceries, or collect their food from nearby restaurants,” Veen told Inside FMCG. “I do think the sector is going to see some challenging times ahead as a result of the economic climate we’re heading into. Food delivery really is a luxury, and with inflation and interest rates [going up], people may very well cut back.”Chia agreed, arguing that the delivery sector will see growth slow next year, and customer behaviour move back towards in-store and local shopping and collection. In the long run, food delivery is expected to prevail. It’s just going to be a rough ride to get there.
