Strategies for the fragmented food delivery industry

It’s official: Everyone is jumping on the bandwagon of preparing or cooking food and delivering it to consumers. This resulted from the prolonged quarantines in many areas and work-from-home setups of many companies, as well as the thousands who lost their jobs and set up their own business at home. Not to mention the restaurants that pivoted their business model to food delivery and the several food delivery apps created by technology companies and even celebrities.

This put great bargaining power on the hands of consumers. Social media is littered with posts of consumers looking for a delicious lunch that can be delivered, prompting home-based food delivery businesses in the community to go on a bidding frenzy and reply with pictures and attractive offerings. These only result in lower margins and fatigue in serving a lone customer who merely posted his or her wish on social media.

This is the nature of the food delivery business industry now. There are no market leaders, and no industry player has a king-sized market share and widespread buyer recognition. This is what we call a fragmented industry, one where market players remain scattered all over the country or across a particular region, and none of them has a substantial market share. Without a clear strategy, one who jumps into this business trend would gain low profits and much effort, or worse, losses.

So what strategies are available for an entrepreneur who decides to get into this crowded industry? There are established proven textbook strategies that a market player can use. The strategic options an entrepreneur can employ vary, depending on the size of the competition.

Before finalizing on the options to take, an entrepreneur should take into consideration the basic features of a fragmented industry. These include low-entry barriers, competition from substitutes, and weak bargaining power of firms because of their relatively small size.

Such an environment may call for a niche strategy, rather than a mass-market one. A niche can take on several forms. These include the demographic niche, which is based on geography or location, and psychographic niche, which is based on consumer behavior, such as those looking for comfort food or healthy food options.

I have written about the geographic niche in a previous column on community commerce, which involves “an exchange of goods, services or something of value between businesses or entities” within a community, be it an actual or virtual one.

Examples of community commerce are TinaPay Online, which delivers bakery favorites to communities in Manila, and the various community markets rolled out in cities in Metro Manila at the beginning of the enhanced community quarantine. The latter partnered with residents from communities to bring well-known food brands closer to them via trucks. They use Facebook to communicate with consumers and accept inquiries on the availability of their products.

This also falls into a group of strategies called focus. A firm may either focus on one product category, or certain customers or a specific location. The product category-based niche strategy enables a firm to specialize by product type (e.g. burgers, Italian food, vegetarian meals). When a firm adopts a niche or strategy based on customer type, it can cater to the needs of specific customers who want products with unique, need-satisfying features. Thus, the firm can concentrate on the production or distribution of those products.

Another strategy is low-cost. Many supermarkets and grocery stores have adopted this strategy successfully and offered delivery services during this time through messaging platforms. They charge low prices for their products, thus attracting customers. This strategy is better used when price competition is high.

Operating standardized outlets in different locations is another strategy for fragmented markets. This is what Family Mart did, setting up in-store kiosks in several locations that offer food and other necessities. These outlets (or operational shops/stores/sales centers) must be operated very efficiently.

When you decide to get into the crowded food business, have a plan and strategy to back you up to minimize risks and losses and increase the chances of success.

 

The author is the chief executive officer of Hungry Workhorse Consulting, a digital and culture transformation consulting firm. He is a fellow at the US-based Institute for Digital Transformation and country representative of the Institute of Change and Transformation Professionals Asia. He teaches strategic management in the MBA program of De La Salle University. The author may be reached at rey.lugtu@hungryworkhorse.com.

Source: https://www.manilatimes.net/2020/10/08/business/columnists-business/strategies-for-the-fragmented-food-delivery-industry/777765/

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