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Food & Beverage

Food delivery war rages amid global COVID-19 lockdowns

Uber Eats touches off industry consolidation, but startups have new tricks

Uber Eats has gone on the offensive in Japan with the introduction of a fixed-rate service.   © Reuters

TOKYO -- With food deliveries expanding fast worldwide as people stay home amid the coronavirus pandemic, three players' growing dominance is realigning the industry in the United States, Japan and elsewhere.

According to L.E.K. Consulting, the food delivery market in the U.S. was worth $53 billion in 2019 and is expected to grow to about $88 billion by 2023. DoorDash, which has bought rival Caviar for about $400 million, now has the largest market share at about 45%, according to Edison Trends. Uber Eats, which has the second-largest share at 28%, announced in July it will buy Postmates, whose 7% share puts it fourth. The Netherlands-based Just Eat has announced it will acquire Grubhub, ranking third with a 17% share.

In China, Meituan Dianping is an unchallenged leader with a 70% share. The IT company is attracting attention as an emerging platform like Alibaba Group Holding and Tencent Holdings. Its strategy centers on a "superapp" that performs multiple functions, such as reserving hotel rooms and finding private lodging in addition to ordering food.

In Southeast Asia, superapps have a unique ecosystem in which food delivery services evolved from ride-hailing apps, including Gojek's GoFood in Indonesia and Vietnam's GrabFood. The common use of motorcycles in these countries makes it easy for the services to find workers who can reach houses even in narrow alleyways.

In Japan as well, competition is heating up as the market grows. Uber Eats, operated by Uber Technologies, has gone on the offensive with the introduction of a fixed-rate service. Domestic player Demae-can and other startups are making their presence increasingly felt by focusing on premium and popular restaurants and hiring higher-quality delivery staff.

Demae-can became an effective subsidiary of Line in April.

"What we set out to do in five years we can now do in just a year," a Demae-can insider said.

Line, which acquired about 20% of the operator of Demae-can in 2019, invested another 30 billion yen ($280 million) to make the company a subsidiary. Hideo Fujii, a Line executive officer in charge of its delivery business, became president of Demae-can in June, and Line has dispatched 50 IT engineers to the new subsidiary. The company plans to integrate its Line Delima food delivery service with Demae-can's under the Demae-can brand name and to make it easier for users of the Line app to register for the service. Line aims to take full advantage of its technology and ample funding to enhance the service's ease of use and expand delivery offices.

The Line app has 84 million registered users and potential customers for the delivery service, which the company is positioning as the core of its strategy of providing wide-ranging services for people's lives through a superapp.

Line is challenging Uber Eats, which with 30,000 registered restaurants is Japan's leading food delivery service. Uber Eats on Aug. 6 introduced a service offering unlimited delivery of foods costing at least 1,200 yen for a monthly fee of 980 yen. Since Uber takes 35% of restaurants' sales and 10% of delivery fees, its expenses likely will increase. It expects to make up for that with higher demand generated by the new plan.

While the two major players now dominate Japan's food delivery industry, startups are increasingly making their presence felt. Tokyo-based Menu, which in 2019 launched an app that provides information on shops with takeout food, opened a food delivery service in April. Extending the ties it established through the takeout information service, Menu has already registered 15,000 restaurants for the delivery service, making it an emerging contender.

A sign of its strength is that it introduced a fixed-rate monthly fee of 980 yen on July 1, a month ahead of Uber. Menu's standard delivery charge is 300 yen. A user of the fixed-rate service gets a 5% discount on purchases over 1,500 yen and can enter a drawing for coupons worth 500 to 10,000 yen.

"This is going to be a crucial year for us to break through. Our top priority is to increase users" rather than short-term profit, said Makoto Yamashiki, head of promotion at Menu.

Menu has ideas beyond fixed-rate pricing. It has started a "supreme restaurants" service that delivers food from about 30 restaurants that require reservations or usually have a line. The list includes Ginza Kyubey, the sushi restaurant where in 2018 Prime Minister Shinzo Abe met with U.S. President Barack Obama. The service requires reservation two days ahead of time but has proved popular.

Many consumers are skeptical about whether food delivery services are reliable. There have been cases overseas where the low quality of delivery staff became an issue.

"[Our] experienced delivery staff has great know-how," a Menu spokesperson said. "They will, for example, carry towels to stuff between ramen bowls and the inside of the bag so the soup won't create a mess."

Using high-quality staffers helps save on training costs.

"When it comes to food delivery, it's not like anyone can do the same-quality job," said Kawamura, who previously delivered several thousand times for Uber. "I'm happy [to work for Menu] because they appreciate the skills of the delivery staff."

Menu also gives discounts on delivery fees. If two or more people order from the same restaurant, there is no delivery fee. The company can save on the costs of delivery personnel by combining orders so a single person can deliver them all. This system works because Menu charges restaurants for delivery as well.

The growth of delivery services has led to the creation of a new form of food service in which "ghost" kitchens need only prepare food and not serve it.

The growth of delivery services has led to the creation of a new form of food service in which "ghost" kitchens need only prepare food and not serve it.(Photo by Suguru Kurimoto)

One such kitchen, operated by Ghost Restaurant Laboratory, is located in the Nishiazabu area of central Tokyo. It is run out of a home kitchen a little smaller than a classroom.

The kitchen develops dishes and prepares them for delivery only. It has developed about 10 brands, making everything from soups to salads. Investors include Toridoll Holdings, which operates the Marugame Seimen chain of noodle restaurants.

Ghost kitchens take varied forms. In the United States, a typical operation provides a shared kitchen where chefs from different restaurants cook items developed specifically for delivery. This is rare in Japan, where chefs are not yet open to the idea of sharing a kitchen and many of the ghost kitchen operators have a kitchen of their own. Seven & i Food Systems, which operates the Denny's chain, opened such a ghost kitchen in Tokyo's Oimachi district in May.

According to the Japan Foodservice Association, the combined sales at about 38,000 of its members' restaurants were down 22% in June from a year earlier. That was an improvement from April's steep 40% fall, but the recent resurgence of COVID-19 has led to another decline in sales. The president of a company operating restaurants, including popular izakaya bar-restaurants, said the situation is so severe "the only way we can survive is to rely on delivery."

Japan's food delivery market is forecast to grow to about 150 billion yen by the end of the year. Restaurants' survival may depend on their being able to take advantage of delivery services to replace the old eating out with the new eating in.

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