While visiting a food delivery company in London, T. Rowe Price investment professionals saw a unique opportunity to go the extra mile in their research and gain a deeper understanding of the company’s potential to deliver growth for investors.
Several of our investment professionals focus on identifying early stage companies that could disrupt their respective industries through technological or business model innovations.
Meal delivery from restaurants has traditionally been a very manual, phone-driven process, and it remains so even today amid the growing number of applications available to mobile users. But the food delivery industry appears to be on the cusp of a technology shift.
Delivery is the fastest-growing channel in food service and is forecast to grow 51% between 2016 and 2021.1
From Brewery Parking Lot to Concept Kitchens
Our investment professionals go beyond the numbers when analyzing companies, heading out into the field to interview top managers and observe operations firsthand. Their research led them to a London-based food delivery company, which had recently unveiled an innovative concept to complement their traditional delivery model: a decentralized network of satellite kitchens from which to launch bike deliveries in a congested urban environment.
The kitchens were essentially converted storage containers with modern equipment and a lean staff. This concept is a fully integrated model, in which orders are accepted, the food is prepared, and delivery people and vehicles are at the ready to transport prepared meals to customers.
The company uses machine learning to predict the time it will take to prepare a meal and ensures that delivery riders arrive at the right time and aren’t waiting for food to be prepared. Their algorithm evaluates the most efficient way of distributing orders based on the location of restaurants, riders and customers, which has led to a 20% decrease in delivery time.
Our professionals were particularly impressed by the CEO's leadership and understanding of the intricacies of running this business.
Gathering Data From the Delivery Seat
One of our investment professionals decided there was more he could learn about the company’s efficiency. So, to get the full story, he hopped on a bike to see for himself.
He’d never biked through London before. And while it was intimidating, it provided the opportunity to talk to the restaurants and understand their relationship with the delivery company.
Through a combination of observations while delivering orders himself, meetings with company management, and thorough quantitative research, he was able to get the full story on the company’s potential to deliver for investors.
Optimizing Both Sides of the Delivery Business
Today’s consumers are more inclined to eat at home and are becoming more comfortable using smartphones and tablets to place their orders. That’s making delivery the fastest-growing channel in food service, which is forecast to grow 51% between 2016 and 2021.2
To be a successful innovator in the food delivery industry, companies need to do two things very well--entice customers to select their business by providing the right selection of meals at a competitive price. Second, on the delivery side, they need scale. Only a steady flow of orders per delivery will be economical.
This research is critical to understanding the economics of food delivery. And an important part of that research is being able to go into the field to see for ourselves whether a company can deliver--in this case, on a bike.
1 Source: Euromonitor International, 9/17.
2 Source: Euromonitor International, 9/17.
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