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Flex Explainer | How Competition in the Delivery Space Drives Real Benefits

Amidst policymakers’ well-intentioned but misguided crackdown on “junk fees”, we want to set the record straight with some explainers to unpack key issues. Here, we focus on the deeply competitive delivery space and how that competition unlocks tangible benefits for all sides. In our next post, we’ll explain the intricacies of three-sided marketplaces like those enabled at scale by app-based delivery platforms. 

You want competition, you got it. First, and without a doubt, the restaurant and grocery delivery space is highly competitive. On their smartphones alone, consumers have many app-based delivery options. In addition to the options provided by app-based platforms, consumers can 1) use businesses’ own delivery services, 2) purchase meal delivery kits and 3) place an order for pickup. And several large companies (Amazon, Target, and Walmart, to name just a few) are investing more in their delivery services every day.

In such a competitive environment, app-based delivery platforms are highly incentivized to differentiate themselves by making their platforms more user-friendly, affordable, and transparent for consumers—especially considering how easy it is for customers to comparison shop and switch between the apps and options above. 

That’s why you’ve seen, in just the first few months of 2024:

Competition generates real consumer value. Second, the fact of the matter is that competition in the delivery space means consumers receive significant value—particularly from app-based delivery platforms.

For instance, the White House’s Council of Economic Advisors (CEA) estimates that food delivery service fees totaled $5 billion in 2021. Yet, in 2022, app-based delivery (and rideshare) platforms generated $11.5 billion in consumer surplus. A wonky economists’ term, consumer surplus is the difference between the price the consumer is willing to pay for a service and the price they actually pay for a service.

The price you pay for something is likely to be at least equal to the minimum value it creates for you—or you would not have chosen to buy it. But the value it creates can be significantly more than this. And in the case of the app-based economy, that consumer surplus is significantly higher than the price consumers pay—and far exceeds the fees charged for these services. 

As app-based platforms compete, consumers see a wider range of options like the partnerships and initiatives noted above that help consumers save time, allowing them to focus on doing the things that are truly important to them. For instance, app-based delivery and rideshare platforms save consumers over 1 billion hours in a normal year. That’s the equivalent of listening to Taylor Swift’s entire discography 49 million times back-to-back. (Don’t think that’s possible, but I wouldn’t put it past a Swiftie or two.)

Let’s dive deep on one demographic to further illustrate. Who is more pressed for time than parents of young children? Which is why it’s not surprising to learn that:

  1. A whopping 85% of parents with children under 18 have used app-based platforms,
  2. Parents of young children are significantly more likely to have used app-based platforms compared to those without young children, and
  3. Nearly 8/10 parents say app-based platforms are valuable to their daily lives.

Competition yields more opportunities for app-based workers. Just as consumers benefit from many app-based platform options, so do workers. 

Many workers earning income on app-based platforms do so across more than one app. On major app-based rideshare and delivery platforms, for instance, individuals “multi-app” or drive/deliver for an average of 1.9 platforms. 

Indeed, app-based workers often have multiple apps open at the same time, comparing and contrasting opportunities available on different platforms. That’s a real benefit of the real competition occurring in this space. 

App-based delivery helps local businesses compete. Third, in the intensely competitive delivery market, small and local businesses benefit from having an array of third-party delivery apps to consider. App-based delivery services are key boosters of local businesses, enhancing their ability to compete by driving both value and revenue.

Recognizing the value in getting their food to more people and driving sales, 75 percent of independent restaurants have utilized third-party delivery. The results are tangible: in 2022 alone, app-based platforms generated $32 billion in additional revenue for restaurants, grocers, and other businesses.

That’s more dollars flowing to merchants in communities across the country. And local businesses understand this: one platform reports that 84% of their merchant partners believe the app-based platform provides them access to an additional revenue stream—and the majority of those merchant partners are small or medium-sized businesses.

* * *

Competition matters. And the app-based industry is competitive in all of the ways outlined above, and amid that fierce competition, the real winners are consumers, workers, and local businesses.

Date: 07/11/2024
Category: Flex Insights