The economics of hyperlocal delivery business – Part 1

Hyperlocal - relating to or focusing on matters concerning a small community or geographical area – Web Definition. And by this definition, a hyperlocal company which does point to point deliveries beyond a small area of say, a radius of 3 to 5 km, is not a hyperlocal delivery business, but a courier business. The economics of courier business is vastly different from that of a hyperlocal business. The most important difference is that hyperlocal businesses have to cater to “now”, while courier companies cater to the need of “later”.

Hyperlocal delivery can vary from food, groceries, goods, medicines, and so on, that are generally required instantly but cannot be consumed in a digital form.

This article will focus on the different types of companies in the food delivery space. There are generally three types of players operating and owning different parts of the food delivery stack.

1 – Food: The most basic part of the stack and generally the restaurants own them.

2 – App: The customer facing part of the stack and generally the food delivery companies are built around it.

3 – Logistics: The final part of the stack, the logistics of delivering food from the source to the customers.

We can classify the business in to three categories:

1 – Food Business: All restaurants are under this category and cloud-only kitchens like Freshmenu, Holachef, Petoo, etc also fall under this business.

2 – App – This can be further classified in to marketplaces model such as Swiggy, Foodpanda, Faasos which aggregate all the food restaurants and food suppliers and inventory model such as Freshmenu, Brekkie, Ammis, Dominos and so on who serve only their food and generally only through their app.

3 – Delivery – Companies like Bikeninja, Runnr (business) who do only delivery and do not have an app.

So a full stack company is the one, which owns the food (product), the app (customers) and the delivery (experience). Very rarely do such pure play operators exist. For this to work out, you need to have great food, huge customer base and a solid logistics operation. Dominos is one such company. They do not outsource their deliveries yet, have massive national presence and rock solid delivery operations. Freshmenu is by and large a full stack company since they own all three parts of the stack, but outsource some part of the logistics to third party delivery service companies.

Short stack companies are the ones, which own at least one part of stack such as companies like Swiggy, which owns the app and the logistics, but depends on the restaurants for the products (food). Then there are companies like Foodpanda and Zomato, which own only the app (customers) and depend on restaurants for food and logistics service providers for delivery. Then comes the restaurants, who own the products (food) and sometimes the experience (delivery) also, but depend on aggregators like Swiggy, Zomato and Foodpanda, etc to get the customers.

In the next article, I will explore the economics of food delivery from the perspective of the food delivery companies.