December 1, 2019

The on-demand life

A decade from now, a family are going through their morning routine. Breakfast has just been delivered from the dark kitchen around the corner, the ironed clothes are due in ten minutes. When everyone is ready, two cars will be booked, one bound the office and the other for the childrens’ school. On the way to work, the parents book a flower delivery, push back a doctor’s appointment, and book some cleaners to spruce up the house before their dinner party that evening. “Should we order a band?” asks the husband. “Why not?” replies his wife. She taps a button on her phone’s ’super app’. “Done.”

This scene from the near future does not merely represent a more widespread version of the on-demand services we have today. In fact, the super app platforms of 2030 may look back on 2019 and wonder why so many delivery services competed over food. Sure, it was an obvious thing to deliver but the margins are so slim, the basket size is small, it must be delivered hot, and people don’t order high-margin alcohol for delivery as they do when they sit down in a restaurant. It also suffers from peak-time problems. It is true that, today, the frequency of ordering is growing thanks to the addition of more meal occasions that have available delivery options – lunches, for example, are becoming more popular. But the same margin constraints still apply.

The ability to scale has obviously been key to turning on-demand businesses into profitable enterprises. Whilst most delivery drivers are “self-employed” and paid per drop, increasing driver utilisation rates has a positive impact on efficiency. To do this, online food delivery groups have begun to offer other items and services on demand and within the same app.

Glovo is a European example. It allows users to order food from restaurants and other items from partner stores, including pharmacies, groceries, flowers, and book stores. It can also send something from point to point, a useful service for a bunch of keys or present. A Glovo rider will even go to a store and buy a particular pair of shoes for you. Gojek is one of the main platforms in Asia. Having evolved from being a simple ride-hailing app in Indonesia, it now offers more than 20 services across South- East Asia. These include laundry, haircuts, and home maintenance.

This is just the beginning of the ’super app’. Over the coming decade, global technology companies will pour money into their development. Super apps will evolve from being mere platforms for offering goods and services, to being vertically integrated groups. Just as today’s grocery stores sell many food products under their own brand, super apps will own the goods and services they provide. They will then offer unlimited free deliveries of anything on demand.

This business model works best in densely-populated cities with a good match of supply and demand to guarantee fast fulfilment of orders and high rider utilisation rates. The increased trend towards urbanisation thus gives the super app movement more momentum.

By 2030, super apps will use artificial intelligence to arrange our on-demand lives. This will work particularly well with routine-based household needs and integrate with the growing trend of smart, connected homes, as well as virtual assistants, such as Amazon’s Alexa. For example, when the fridge senses there is only enough milk for three days, it can connect to the kitchen’s assistant which houses the family’s super app subscription which then ensures an order of milk arrives just before the family is projected to run out, but not too far before. As more personalised data is collected the system becomes more intelligent.

If existing bricks-and-mortar stores think they have it tough today, over the coming decade, they will have to become used to further digital competition. Experience in food takeaway business suggests that online marketplaces were originally very accretive for small, independent takeaway shops. They gained access to a new online user base and this new revenue went largely to the bottom line. However, as more restaurants crowded the marketplace, more advertising spend was needed. Furthermore, as customers began to rely on the platform, it grew its negotiating power over the restaurants which had to then pay a higher commission. Furthermore, some restaurants found that online ordering cannibalised its core business.

Today, ’dark’ kitchens are growing their presence. ’Dark’ stores in other industries will follow suit over the coming decade and resemble something like small, local warehouses. They will be located to optimise route planning in a particular neighbourhood and will also be outfitted with vertipads for drone delivery (see our piece The Future of Drones).

As we approach 2030, the shift from offline to online everything will further remove the direct relationship with the end customer. Many restaurants are already questioning the merits of advertising on online platforms given they have to pay a commission of up to 30 per cent of their sales. The flip side of on-demand culture is that it will likely open a niche gap in the market for stores that aim to be destinations in themselves. Over the last decade, some traditional stores have had to throw out the old metrics, such as ’sales per square foot’ and focus on being more attractive places to shop. The rise of on-demand culture seems unstoppable, but even in ten years’ time, it just might coexist with a new version of high-street retail.