A vast number of the companies offering delivery services act as middlemen between consumers and a network of merchants (retailers, restaurants, etc.). They focus on building a platform that connects the two parties and in return they collect a fee which is usually a percentage of the order total. While this “asset- light” model has become vastly popular and welcomed unprecedented amounts of funding from large-scale investors, the economic sustainability of these businesses is still in question. The vast majority of these delivery service providers are still unprofitable and several have gone out of business in the last 12 months. What makes it so challenging for these businesses to succeed? The answer lies within the business model. These platforms generate revenues by collecting a small percentage of each order. To be economically viable, they must invest heavily in never-ending overhead such as marketing, promotions and
technology-related costs that power and drive high volumes of traffic onto their platforms. In addition, these companies also incur variable costs that can eat up 80-90% of the margin collected through order fees. Heavy marketing and promotional discounts (30% off your next 3 orders!) may drive traffic to these platforms, but is the approach sustainable? According to a report by Clever Tap, a U.S-based mobile marketing company, only 22% of new app users remain active after the first week and 86% stop using the app within 14 days of the launch. So, this revolving door of customers leads to constant, incremental investments in marketing, perpetually driving higher overhead costs and an unsustainable business model. While delivery apps clearly have economic challenges, an even bigger hurdle is managing and driving a consistent customer experience. The “asset-lite” model provides high levels of flexibility for these companies, but in return they have minimal control over the availability and flow of the products they offer.
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30 The Acumen
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