When it comes to Amazon, pretty much everything it touches turns to gold. But at the moment, it appears Amazon may have met its match in the food delivery service sector. As of June 24th, Amazon Restaurants delivery services will be ceasing throughout the U.S. After four years of trying to compete with other food delivery companies, it is simply not making headway. But does this mean Amazon is actually giving up on this potential revenue stream forever? In all likelihood, probably not.
There is little question that other food delivery companies are achieving tremendous success in the marketplace. In fact, restaurants are completely revamping their services to accommodate increases in takeout deliveries. But there are still questions surrounding the long-term sustainability of food delivery companies in the future. Some even cite the closing of Amazon Restaurants delivery operations as proof. Others, however, see this as simply an opportunity to adopt a new strategy. Thus, examining the future of food delivery companies offers an intriguing exercise into what might eventually evolve in this sector.
A Snapshot of the Food Delivery Companies Sector
Believe it or not, four food delivery companies own 93 percent of the sector. Leading the pack is GrubHub, which has a presence in over 2,000 cities. Next in line is Door Dash with a 29 percent market share and over $1 billion in funding. These leaders are then followed by Uber Eats and Postmates, with Postmates having a greater presence in over 3,500 cities. Where did Amazon Restaurants delivery services rank? After four years in the market, they were only able to attain a two percent market share.
For Amazon Restaurant delivery strategies, a few issues helped account for their market struggles. First, Amazon restaurant delivery was only available in about 20 cities. Secondly, unlike other food delivery companies who served all customers, Amazon Restaurant only offered services to Prime members. And finally, Amazon Restaurant failed to align with any specific restaurants. All the other successful food delivery companies have demonstrated success through such partnerships. Ultimately, these factors undermined the chance for Amazon Restaurant to gain ground.
Amazon’s Present Situation Regarding Food Delivery
Perhaps, it was of little surprise that Amazon Restaurant delivery services would be closing. Back in November, Amazon Restaurants closed operations in London after failing to compete with Deliveroo. Deliveroo is among the most successful food delivery companies currently operating in 14 countries. Appreciating Amazon’s willingness to pull back in London due to strong competition was a hint of things to come. And as GrubHub and the other food delivery companies have continued to advance, Amazon had little choice but to abort altogether.
While Amazon Restaurants delivery services will stop, that does not mean Amazon is stopping all food deliveries. It will continue to deliver groceries to its Prime members through two offerings. For one, Amazon offers free grocery delivery from Whole Foods, the grocery chain Amazon recently purchased. Likewise, the company will continue with Amazon Fresh, which delivers groceries to Prime members for an additional fee. Thus, while it will no longer compete with food delivery companies serving restaurants, it will continue grocery delivery offerings.
Redirecting or Reloading? Predicting a Likely Future for Amazon Food Delivery
The closing of Amazon Restaurant delivery services could suggest that Amazon will focus its interests elsewhere. But that might be a bit presumptuous based on recent activities. While Amazon did discontinue Amazon Restaurant delivery operations in London months ago, it has also invested in Deliveroo since. In fact, Amazon was the lead investor in $575 million that Deliveroo received. With this Amazon investment, it is doubtful that Amazon is giving up entirely on food delivery companies.
But this is not the only indication suggesting that Amazon may persist in its efforts in this sector. Amazon has much to gain from potentially acquiring one of the existing food delivery companies. Given the high margins, these companies charge, Amazon could absorb some of these costs through its Prime membership offerings. In doing so, Amazon could compete with other food delivery companies on price while driving new customers to Prime. Likewise, Amazon could leverage its existing Amazon Flex drivers to deliver both meals and packages. This Uber-like ridesharing service could be used to quickly ramp up services. These naturally make such an acquisition highly attractive.
Leveraging Economies of Scale in the Food Delivery Sector
Based on Amazon’s business model, it only makes sense that the company would be attracted to the food delivery sector. Its investment in Deliveroo supports this, and it may eventually pursue one of the U.S.-based food delivery companies soon. Despite Amazon Restaurant delivery services coming to a close, this isn’t likely the last we will hear from Amazon in this sector. It’s simply a small setback on a trajectory that views food delivery as another complimentary service to its existing offerings.