{"id":11429,"date":"2020-03-23T22:18:17","date_gmt":"2020-03-24T02:18:17","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-digit\/submission\/caviar-food-deliverys-race-to-your-doorstep\/"},"modified":"2020-03-23T22:18:17","modified_gmt":"2020-03-24T02:18:17","slug":"caviar-food-deliverys-race-to-your-doorstep","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-digit\/submission\/caviar-food-deliverys-race-to-your-doorstep\/","title":{"rendered":"Caviar \u2013 Food delivery\u2019s race to your doorstep"},"content":{"rendered":"

Caviar entered the competitive food delivery space in 2012 positioning itself as the \u201cfancy food\u201d delivery startup. At that time, the market was dominated by two large players, Seamless and Grubhub, with many new players looking to enter. Caviar\u2019s platform architecture allowed it to succeed in difficult circumstances; however, as competition has increased significantly, how should Caviar respond?<\/p>\n

Value Creation<\/u><\/strong><\/p>\n

Caviar\u2019s platform architecture created value by focusing on a niche market<\/strong> that would drive a critical mass of users with only a few restaurants, allow for exclusivity to reduce multi-homing<\/strong>, and provide ancillary services<\/strong> for restaurants to reduce the barriers to entering the delivery business.<\/p>\n

Caviar launched with a relatively limited, curated assortment of restaurants that had loyal customer bases among food enthusiasts. With only 30 restaurants, Caviar had a small selection compared to its competitors, offering around one vendor per cuisine. Despite this, Caviar\u2019s value proposition of \u201chype\u201d restaurants attracted a different customer base that were willing to pay a premium to get delivery from these crave-able restaurants, many of which had never been available before on delivery. In addition, by onboarding restaurants new to delivery onto its platform, Caviar was able to sign exclusivity with many of its partners (see Exhibit 1) to reduce the multi-homing and creating stronger network effects with its users.<\/p>\n

Exhibit 1<\/strong><\/h4>\n

\"\"<\/a>Finally, Caviar managed the delivery personnel and later on offered restaurants additional services such as data analytics, integration with order management systems, and access to corporate clients. Through this positive cycle, Caviar amassed a large user base, which benefited restaurants by expanding their reach to customers and ultimately add an additional source of revenue through delivery sales.\u00a0 [1]<\/p>\n

Value Capture<\/u><\/strong><\/p>\n

Caviar\u2019s original business model highly favored restaurants by limiting their downside<\/strong> \u00a0and enticed delivery workers by passing on the costs to the consumers. It charged a $9.99 delivery fee on all orders, had inflated menu prices on some items and utilized an 18% gratuity for all orders. According to Eater, delivery workers were took the entire $9.99 fee plus a portion of the gratuity and Caviar earned money by keeping a percentage of the gratuity, service fee, and surcharge on food items. For restaurants, once they were able to integrate delivery into their operations, Caviar was a favorable option as they were allowed to opt out any time and could refuse to take orders if they were too busy. [2]<\/p>\n

The Present<\/u><\/strong><\/p>\n

As the food delivery industry evolved, Caviar made some adaptations to protect its territory and remain relevant amongst its deep pocketed competitors. First, there has been major consolidation in the industry in a race to scale operations. Now, 94% of all food delivery is being made by 4 large players (see Exhibit 2).<\/p>\n

Exhibit 2 [3]<\/strong><\/p>\n

\"\"<\/a><\/p>\n

Scaling operations has significant benefits in lowering operating costs, driving efficiency, and amassing a user base. Caviar was acquired by food delivery platform DoorDash in 2019, and probably would not have survived the \u201crace to space\u201d without securing well-funded partners with extensive operations capabilities along its way.<\/p>\n

Caviar has also changed its business model to the commissions model that the rest of the industry employs. It charges up to 30% commissions to restaurants for delivery, and ~12% for pick-up orders. [4] This is likely in response to the rapid platform growth and restaurant penetration \u2013 it\u2019s much harder to differentiate and thus the strength of the network effects has changed. While luxury restaurants first attracted consumers, now a large user base is the top priority and exclusive restaurants is helpful, but a secondary differentiator. Furthermore, updated its delivery fee to customers from $0.00-$9.99 reflecting its need to match the range of its competitors despite its premium quality. \u00a0The industry suffers from customers\u2019 ability to multi-home with little customer loyalty and many players fight for users by offering discounts.<\/p>\n

Moving forward, Caviar and DoorDash need to find more defensible positions sustain them over time \u2013 user penetration in the US is ~15.9% and is expected to grow to 18.4% by 2024. [5] Ancillary services for restaurants and delivery personnel are now the norm, with some competitors like Uber Eats competing through their ability to network bridge across their complimentary ride-hailing app. One strategy that DoorDash is employing is with DashPass, a subscription service to DoorDash that eliminates delivery fees, and focuses on reducing multi-homing and building customer loyalty. Caviar could look to do something similar or look to create contracted partnerships with corporations to cater lunch to employees. While there has been some brand dilution, Caviar has been able to maintain its premium brand despite the acquisition and should look to protect this unique characteristic of the platform. Finally, Caviar could think beyond the scope of delivery and consider creating unique customer experiences (VR, AI, sustainability\/packaging) to differentiate itself from competitors. Ultimately, Caviar and DoorDash\u2019s sustainability does depend on capital and their ability to allocate resources towards the right projects and they continue to scale and maintain the platform.<\/p>\n

References:<\/p>\n

[1] https:\/\/www.trycaviar.com\/<\/a><\/p>\n

[2] https:\/\/ny.eater.com\/2014\/2\/10\/6282591\/inside-caviar-a-new-premium-food-delivery-service<\/a><\/p>\n

[3] https:\/\/www.businessinsider.com\/doordash-buys-caviar-food-delivery-consolidation-2019-8<\/a><\/p>\n

[4] https:\/\/getbento.com\/blog\/online-ordering-grubhub-doordash-postmates-ubereats-caviar-chownow\/<\/a><\/p>\n

[5] https:\/\/www.statista.com\/outlook\/376\/109\/platform-to-consumer-delivery\/united-states<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

Caviar entered the competitive food delivery space in 2012 positioning itself as the \u201cfancy food\u201d delivery startup. At that time, the market was dominated by two large players, Seamless and Grubhub, with many new players looking to enter. Caviar\u2019s platform architecture allowed it to succeed in difficult circumstances; however, as competition has increased, how should Caviar respond? <\/p>\n","protected":false},"author":11399,"featured_media":11432,"comment_status":"open","ping_status":"closed","template":"","categories":[2031],"class_list":["post-11429","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-food-delivery","hck-taxonomy-organization-caviar","hck-taxonomy-industry-food-and-beverage","hck-taxonomy-country-united-states"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-digit\/assignment\/platform-business-challenges\/","yoast_head":"\nCaviar \u2013 Food delivery\u2019s race to your doorstep - Digital Innovation and Transformation<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-digit\/submission\/caviar-food-deliverys-race-to-your-doorstep\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Caviar \u2013 Food delivery\u2019s race to your doorstep - Digital Innovation and Transformation\" \/>\n<meta property=\"og:description\" content=\"Caviar entered the competitive food delivery space in 2012 positioning itself as the \u201cfancy food\u201d delivery startup. 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