Food delivery business gets crowded in the UAE
Restaurants are not complaining as they strike sweet deals with online platforms
Dubai: Ordering in a meal is no longer just about going through a menu and selecting the option you want delivered to the home or wherever you are. That’s the easy part.
What’s nowhere near as easy is choosing which F&B (food and beverages) delivery app to press on the smartphone to make that transaction happen.
Should you go with the one offering a straight discount for first-time users? Or stick with the tried and tested delivery provider? Or are there other options to pick, and where there are more benefits being thrown in to sweeten the deal?
These are the choices UAE consumers — and its F&B operators — are grappling with. Every other month seems to bring in a new F&B online order and delivery platform trying to catch the eye and become a contender. Joining the fray recently was Careem, trying to recreate its obvious strengths in the local ride-hailing business into food delivery services as well.
Delivery in this part of the world is as much a convenience as it is a necessity due to adverse weather conditions for most part of the year.
From the outside, it looks as if the F&B industry is spoilt for choice — that each of these delivery platforms are an extension of the restaurant or café’s business reach. But is it as easy as that?
“If a delivery aggregator (such as Deliveroo, Uber, Talabat or Zomato) can generate orders on its own, deliver those for the F&B operator and charge between 15-20 per cent of the order value, it is definitely a commercially viable proposition for the F&B operator,” said George Kunnappally, Managing Director for the UAE operations of the casual dining chain Nando’s.
But if the delivery services were directly owned by the F&B business, “a delivery bike driver needs to do at least five to six deliveries per shift for an invoice value of about Dh100 to only cover the cost of the fleet and the call centre,” said Kunnappally. “So, unless each driver averages above 12 orders per shift each day without a drop in the average transaction value, there is hardly any money to be made in deliveries.”
And the last two years have not been easy for restaurants in the UAE. Many operators realised that even a good location may not be able to generate enough business to sustain it … especially if rents are going to eat up a good chunk of their cash flow.
It is a misconception that it costs less to have third-party delivery collaborations as opposed to a company doing it by itself.
In such a market environment, F&B order and delivery services fulfil a vital need by bringing in orders that a restaurant operator on his own may not have been able to generate.
“Delivery apps and delivery firms make for a strong business case from a pure commercial point of view,” said Kunnappally. “The F&B operator can then focus on their core competence — consistency in food preparation, presentation and offering a unique dining experience, while the delivery portals can manage what they are good at — delivering food at the right temperature and quality across town.
“Delivery in this part of the world is as much a convenience as it is a necessity due to adverse weather conditions for most part of the year. Honestly, aggregators are the future.” (Currently, Nando’s generates a fifth of its revenues via deliveries, and of this, nearly 75 per cent is generated and delivered through third-party service providers.) Which is why a Careem got into the delivery business, and why there are other potential operators looking to make an entry despite the marketplace already having its fair share of players.
As of now, Dubai and Abu Dhabi are relatively well-covered, but that still leaves other emirates and sub-markets to fight over.
Tawseel made its start in Sharjah and has now extended its delivery range to Dubai and Ajman. “We have expanded heavily since the acquisition deal in May 2018 — we are now at 200 bikes between Dubai, Sharjah and Ajman,” said Sarmad Al Zadjaly, CEO of Tawseel. “Our focus for 2019 is to add 400-500 bikes.” (In May last year, the Fares Foundation picked up 50 per cent in Tawseel.) “Abu Dhabi is in [the] 2019 plan … but our biggest move so far is Saudi Arabia. We started with an office in Riyadh and aim to begin operations this quarter.”
But with each new entrant in the food delivery business, will it not eat into their operating margins? And undercutting the commissions they charge restaurants?
We have expanded heavily since the acquisition deal in May 2018 — we are now at 200 bikes between Dubai, Sharjah and Ajman.
“I would not say undercut, but I would put it as having competitive margins,” said Al Zadjaly. “This will make more sense amid the increase in competition. And make sure clients benefit from our solutions rather then it just being a service we provide.”
Those bikes — and those operated by the other delivery vendors — will remain a constant on UAE roads. And restaurant operators are there to join the ride.
Not everyone believes in F&B delivery portals
Don’t try convincing Ian Ohan of Freedom Pizza that online delivery service providers are good for business. He’s not going to buy that argument.
“It is a misconception that it costs less to have third-party delivery collaborations as opposed to a company doing it by itself,” said Ohan. “Third-party operators compose 20-35 per cent of the restaurant’s order cost in addition to customer charges of Dh7. That means, for example, Dh37 go to third-party delivery operators on a Dh100 order.
“Restaurants cannot support these fees and third-party companies are putting our competitors out of business. Even with these high fees, third-party food delivery companies lose money on every single delivery. They are funded by easy tech money that is fast drying-up.” Freedom now operates its own delivery operations, using a fleet of 300 drivers. “Maintaining control of our value chain, service and relationship with customers is paramount,” said Ohan. “We do over 8,000 deliveries a week from our fleet. Freedom’s drivers don’t just do deliveries -they are also cross-trained and most of our store managers started as delivery drivers.”
What F&B operators should look for in online platforms and delivery providers
If a restaurant can generate 150 to 250 orders a day through the online platforms, then the following is likely to happen, according to George Kunnappally of Nando’s:
■ It can negotiate a commission rate of 15-18 per cent of the transaction value;
■ The online platform also has an incentive to promote the outlet actively on its site;
■ It may also run above-the-line campaigns featuring the F&B brand;
■ The platform monitors the restaurant’s performance with weekly MIS (management information system) reports and performance metrics to enhance the customer experience;
■ It could offer free delivery and free commission weeks to further promote the restaurant.
■ But if the restaurant’s order volumes are low, then the operator will need to pay 25-30 per cent as commission to the online service provider.
Tough market, but Dubai continues to feed more F&B players
Operating conditions for the F&B industry might be red hot in Dubai, but that is not stopping more players coming in to try their pot luck. As many as 1,109 new F&B outlets opened in the city during 2018 and comes on top of the 1,011 outlets that went into business during 2017. The latest additions take the overall tally of restaurants and cafés in Dubai to 11,813 as of end last year.