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How food and grocery delivery startups are an emerging force of the coronavirus pandemic

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The pandemic is changing the how the world operates — conventional schools are tutoring students online, established co-located companies have started operating remotely, and people are relying on telemedicine for their routine consultations.

In the same way, this virus is also changing our society’s eating habits.

With the virus still peaking and lockdowns in place, people no longer have the option to dine-out at restaurants. Even though grocery stores and supermarkets are functional – people are trying to reduce their touch-points with public locations as much as possible.

This gives rise to a massive opportunity for food and grocery delivery startups to take the market by force and consolidate their services, which is now changing due to the increasing demand for home delivery services.

Meeting the new demand

Even though people want delivery services now more than ever, it’s not going to be plain sailing for these startups. They need to rapidly ramp up their delivery fleet to meet this new demand.

For example, Instacart is in the process of hiring 300,000 workers across North America to meet the surge. They were at least four years out from this kind of scale but need to onboard more shoppers to catch up with the unprecedented demand.

Doordash has created a priority access program for restaurant staff to sign up as Dashers.

This is a two-way benefit program. Since most of these workers are out of work due to the mass shutdown, they can use this opportunity to make up for their financial needs. In return, this provides Doordash easy access to a greater pool of workers.

Efforts to sustain restaurants

Since the dine-out revenue has been completely wiped off for restaurants, the economics need to make sense for them to keep their service up and running.

To help restaurants operate sustainably, Doordash has halved its commissions for its existing restaurant partners. Not only that, but independent restaurants in the United States can sign up for free with DoorDash and Caviar and pay zero commissions for 30 days.

Furthermore, both UberEats and Doordash, have dropped their delivery fee to zero for independent restaurants. This will help drive more orders to these individual restaurants and can partially make up for the revenue which has been lost.

Doordash is even going a step further by committing to reserve $20 million in restaurant marketing programs to help drive volume to merchants.

Had these services not existed, restaurants would’ve had a hard time sustaining their business.

Expanding services

The pandemic is forcing delivery companies to go beyond their usual expectations and add more items to their offerings. Instacart has partnered with Costco to enable pharmacy deliveries across 200 locations in Arizona, California, Delaware, Florida, Illinois, New York, and Washington.

Going forward, these startups can also create a unique proposition for hospitals and other medical institutions. They can own the delivery of food or groceries to these institutions by ensuring that the items have not come in contact with any infected personnel at the outlets or during the delivery.

Cloud kitchens are the future

Despite the fact that the stay at home orders might be relaxed in a few weeks, it will take much longer, maybe even years, for people to be comfortable enough to be regularly eating their daily meals at restaurants, as they used to in the pre-pandemic era.

If the current trend continues, it will not make sense for restaurants to rent a large space when all they need is a kitchen to service their customers.

Renting spaces is expensive and comprises up to 30% of a restaurant’s operational cost. In such a scenario, cloud kitchens can help restaurants cut their operational costs massively by providing just enough space for a restaurant to cook its food.

Hubs with 20 or more kitchens can allow multiple restaurants to operate efficiently. This will also help delivery services to cut their delivery fee by making delivery areas more predictable and enable batching of orders.

Startups investing in infrastructure ready cloud kitchens will benefit massively in the future. They will need to go beyond their strengths to construct these hubs but the effort is going to be worth the upside.

Contingent on how well we are able to eradicate the virus, the landscape of the food and beverage industry is likely to see a massive shift.

Disclosure: This story is brought to you through an ESPACIO portfolio company.

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Udit Gupta
Udit Gupta is an engineer by education & product designer by profession. As Head of Product at Zomato - he oversaw the food delivery product. It involved acquiring new customers through non-traditional channels, launching new product lines and improving the overall customer retention of the product. Prior to food delivery, he also launched the Zomato Gold subscription product and led its growth to a million user customer base. Udit has been an early member of the Zomato team since joining it in 2013. In early 2020, he co-founded his own company with Akarsh Sanghi and raised initial seed capital from Y Combinator.