The Middle East food delivery market is heating up in response to spiraling customer demand. Global players, including Uber Eats and Deliveroo, homegrown players like Talabat and Carriage, as well as several other smaller intra-city companies are all vying to stay relevant in the ultra-competitive market.
Many factors feed into the hands of online food delivery companies in this region with, arguably, the primary one being the weather. When it is oppressively hot, the convenience of having a diverse range of food delivered home is ideal for customers. In addition, extremely high expendable income levels, one of the highest penetration levels of smartphones in the world, and the global diversity of residents has fueled the popularity of food delivery companies in GCC countries.
The online food delivery market will grow aggressively, surging from about $450 million in 2018 to over $2 billion by 2025. This growth has, in turn, incentivized restaurants and kitchens to partner with online food delivery companies in order to expand their reach and attract new investments.
Food delivery companies typically adopt one of three distinct strategies, choosing to operate either as full-stack players, delivery enablers or aggregators. In the Middle East, the preferred approach appears to be the classic, delivery enabler approach of hosting a platform and providing the last-mile delivery services, while tying up with third-party restaurants and food preparation outlets.
Some new startups in the online food delivery space are looking at this model in a different way and changing the way this strategy is executed. Food To Go started in Dubai in early 2019, is based on the cloud kitchen strategy and provides food and beverage outlets with state-of-the-art kitchen space and manpower. These outlets only have to train their employees to prepare their dishes, while Food To Go takes care of the rest. The company has an online ordering platform, call center, and delivery service, and this allows Food to Go’s ecosystem to efficiently handle the entire customer journey at a lower cost than a traditional food delivery company.
In addition to the already stiff competition in which online food delivery companies are engaged, the Middle East food delivery market is beginning to see the entry of online marketplace companies. Jollychic, a Chinese unicorn with a cross-border e-commerce platform that started in 2012 selling fashion products, is looking to expand into all forms of last-mile delivery services, with food being a critical part of this service. This is in keeping with the trend of companies with established last-mile delivery services attempting to leverage their expertise into new product areas and diversify their capabilities.
Within the online food delivery value chain, delivery forms a significant, if not the most expensive, part of the final food bill. This is motivating companies to look at innovative ways to deliver the food to end customers, mainly with the aim of reducing costs and improving the reliability of last-mile services. For example, FedEx recently announced that it would begin delivering food and parcels directly from shopping malls and restaurants using its Roxo robot in Dubai.
Logistics is a dynamic industry, especially in the Middle East, which has considerable volumes of regional and international trade. A large number of startups are emerging to improve the quality and efficiency of last-mile delivery services. These could either complement existing online food delivery companies by operating as third-party service providers or compete by empowering restaurants to deliver food directly to the customer.
While online food delivery platforms have been able to drive business to restaurants from all parts of the city, things haven’t worked out quite as well in reverse. Recently, a number of restaurants detached themselves from online food ordering platforms in protest against their deep discounting policies.
To survive amidst increasing competition and lure customers, online food delivery platforms have aggressively promoted various discounts and deals. Restaurants have been at the receiving end of such discounting behavior. But while they feel that these are unfair practices, the fear is that if they do not collaborate, they stand to lose business. In an industry where margins are razor-thin owing to the escalating cost of doing business, restaurants cannot afford to let go of any revenue-generating opportunity.
Despite these challenges, online food deliveries are expected to continue to grow strongly spurred by robust economies in the GCC countries. Meanwhile, the upcoming six-month-long Expo 2020 in Dubai will definitely drive competition and food outlets to their maximum potential. It will be exciting to see what new ideas and innovations companies will come up with to stand out from the crowd.
This article was written with contributions from Viroop Narla, Team Leader with the Business Strategy & Innovation group at Frost & Sullivan, and lead author of a recently published study titled, Future of Global Online Food Delivery Services Market.