The state of ultra-fast, 15-minute food and meal delivery is a lot like musical chairs, and right now, the game is in its early stages as growth surges within major cities, namely NYC. The music is playing, and competitors like DoorDash, Gopuff, Getir, Gorillas, and Fridge No More are circling the prize, reaping massive year-on-year growth as their employees criss-cross the city delivering food to expectant shoppers. The prize looks enticing; the opportunity vast. What shopper doesn’t want their food now? Potential markets include most residents of all densely populated metropolitan areas around the country. But just like the popular game, competition will prevent some players from finding a seat as the industry matures and the music stops.

Since the onset of COVID, the instant food delivery market has soared. Instacart, for all its growth and headlines, isn’t really a competitor here. If Instacart replaces a pre-planned fill-in or stock-up trip to the grocery store, these other services are focused on replacing more urgent shopping occasions such as the trip to the corner store or restaurant. They fulfill a need for immediacy and help reclaim precious time for the busy lives of many urbanites. The catch? The cost of doing business is astronomical.

Generous sign-up promotions translate to high customer acquisition costs, and these companies are hemorrhaging vast sums in their growth stages as many customers are new. No basket minimums mean even paying customers are frequently unprofitable as the margins on one or two items plus associated fees cannot cover the cost of delivery for the provider. The implicit demand for immediacy and ever-faster delivery leads to further inefficiencies in routes and drivers. Finally, even if a potential customer trials one service, there is no guarantee of future engagement. Loyalty is cheap in a hyper-competitive market. All of these services are growing, but profitability remains elusive.

There may not be an obvious solution to this problem. The market has yielded a prisoner’s dilemma. In search of a lucrative prize, delivery services must outshine each other with shopper-friendly features. Yet when all players offer these perks, the differential advantage for any one of them is lost. Take these benefits away, and you sink beneath the advances of the competition. In the end, the players are back where they started, but with fewer resources and less breathing room to grow and sustain their business.

That the market can bear this structure points to backing investor’s faith that the future opportunity is too great to ignore, and that winning this race can overcome profitability challenges in the long run. Scale high enough, and costs come down enough to create a sustainable business model. But none of these organizations are competing in a vacuum.They are competing for the same use cases and the same shopper. Eventually these growth figures will hit a wall imposed by the growth of other players. For most players, that wall may arrive before they become profitable. The industry is headed for an inevitable shakeout where for some players to find their seat, others will be standing in the rain.

Applied automation. For those focused on improving internal profitability, there is at least one option available. Use of emerging technologies promise to bring down costs in the near future. Better route optimization, driverless or drone delivery, and even SaaS platforms for internal systems management can all improve results. Once again, however, this requires upfront capital investment to plan for an expected payoff. Any technology that adds a differential advantage in terms of lower costs or better shopper experiences gives some space for a delivery service to become a more financially stable company. 

More geographic bets. Fast grocery delivery is inherently driven by geography, and if a service can’t scale nationally, then it may be able to scale locally. These services can take a strategic view by tiering cities by size-of-prize and shopper fit to determine the best prospects for expansion. We can envision a future where the nation gets carved up with certain delivery services only becoming dominant in some cities. Establishing a presence first in certain cities could yield first mover benefits and allow a service to scale and become more profitable without worrying about short-term competition.