Delivery accounts for 9 prevent of the $282 billion fast-food sector in the US. However, third-party delivery services like Grubhub and Doordash continue to struggle financially. In addition, 70 percent of consumers say they would rather order directly from a restaurant, preferring that their money goes straight to the source.
To learn more, Digital Journal spoke with Chris Baggott, a tech entrepreneur who is charting the future of profitable meal delivery through advanced technology. Baggot’s ClusterTruck, is a software platform that drives profitable, vertically integrated delivery-only kitchens.
Digital Journal: How big is the food delivery business set to become?
Chris Baggott: The food delivery business is already very big and only getting bigger. The industry is expected to grow from $43 Billion in 2017 to $76 Billion by 2022 — an expected growth of 77% in just five years.
DJ: With this level of growth, why are so many startups not making money?
Baggott: Companies are looking at the problem from the wrong angle and retrofitting food delivery into a non-delivery system, resulting in long wait times, cold food, expensive delivery fees, and failing business models.
Back in the late 1970’s, if you were shipping a letter or package, it would take 5-7 business days to deliver. Fred Smith invented Fedex and guaranteed delivery at 10am the next morning! How? Fedex ignored the incumbent solutions and took control of every single step in the process (planes, trucks, vans, warehouses and software).
Today’s larger food delivery models are dependent on a complex myriad of solutions that are not designed holistically. Additionally, they are completely dependent on fees, which is not a sustainable solution and makes customers very unhappy.
DJ: Do consumers like dealing directly with restaurants or the new delivery service companies best? What are the main concerns that consumers express?
Baggott: One can spend about 5 minutes on any review site and see that consumers are continually frustrated with low quality food, poor customer service, and slow delivery times. The third party system is not working for the customer, the restaurants, or the delivery folks.
Our experience in ClusterTruck’s first five markets is that when you solve the pain associated with fees, timing, and quality, the customers will reward you with loyalty, which you can find reflected publicly in reviews. ClusterTruck’s model business model was built to be sustainable without charging service or delivery fees.
DJ: Can the delivery sector become profitable? Will new technology help?
Baggott: The ClusterTruck model is profitable and to our knowledge, is the only profitable food delivery model. And it is entirely driven by technology. ClusterTruck’s vertically integrated delivery-only kitchens are powered by a proprietary software system that uses custom algorithms to optimize kitchen and delivery operations. This systematic approach to meal delivery ensures that nearly every order is in the hands of the customer within 7 minutes of the meal’s preparation. The average time between placing an order and a customer receiving their food is less than 30 minutes.
DJ: What types of business strategies should companies be putting into place?
Baggott: My advice is to focus on your core business and stop chasing incrementality. 10 years ago, Groupon faced a similar problematic scenario. They became the fastest growing company in history selling a ‘marketing’ service to small businesses, promising ‘incremental’ new business. Over time, the businesses recognized that this incremental new business concept caused a lot of friction with their existing business. It was lower margin, attracted customers who did not remain loyal, and downgraded the experience with their most important customers. A company that went public with a lot of potential is now a significantly smaller player.
DJ: What else is needed within the sector?
Baggott: The industry needs more companies like ClusterTruck willing to innovate. One of the best examples of this is our partnership with Kroger, who have 2800 kitchens waiting to be disrupted. For the partnership, Kroger is leveraging ClusterTruck’s advanced technology in select kitchens, seeking to change the way Americans access freshly prepared meals.
