ifood: Innovation and Differentiation for Sustainability

iFood is the leading food delivery platform in Brazil and has expanded into Colombia, Mexico and Argentina. It has fared well on the scalability test. Amidst increased competition in the industry, however, can it ensure profitability and long term sustainability?

 

 

iFood is the leading food delivery platform in Brazil and has expanded into Colombia, Mexico and Argentina. It has fared well on the scalability test. Amidst increased competition in the industry, however, can it ensure profitability and long term sustainability?

Brazil-based iFood is one of the leading food delivery apps in Latin America. In Brazil alone, it has over 50,000 registered restaurants and 130,000 couriers registered in the platform. When looking at the other countries in which it now operates (Colombia, Mexico and Argentina), the number of registered restaurants totals 131,000. 

iFood was founded in 2011 and is part of the Brazilian mobile conglomerate Movile. Although it began as a restaurant delivery app only, supermarkets and grocery stores were added to the platform in a response to competitor Rappi’s market entry.  By early 2019, iFood had over 400,000 orders per day, amounting to over 12 million client requests per month. According to data provided by SimilarWeb, iFood’s active user base was 16 x larger than that of its close competitors.  iFood holds about 80% of the delivery market share.

Value Creation Strategy

iFood’s initial strategy relied on a platform business model. Value was created for users, restaurants or retail stores and drivers by essentially connecting them through the app. iFood had a first-mover advantage and network effects have played an important role in the rapid expansion of its user and restaurant base: as more restaurants were added to the platform, users became more inclined to use it to “shop” for their meals, which led to other restaurants to want to join as well. When compared to its top competitors in Brazil, UberEats and Rappi, iFood and UberEats rank amongst the most popular ones, depending on which app store is analyzed. 

In addition to connecting users to restaurants, iFood offers consumers a pretty seamless experience. The UI is simple and easy to use. Filters allow for the consumer to choose restaurants based on their ratings, cuisine and delivery time. Consumers are charged a flat delivery fee and although discounts are occasionally offered via SMS, iFood does not have a rewards program. The platform does not benefit from any side to side effects, which is potentially an area to be explored. Rappi, for example, offers Rappi Pay, which allows for platform users to pay for other users’ orders or transfer balances from their account to someone else’s. 

Value creation for the restaurant or retailer has expanded over time, as iFood went from a platform only business model to a hybrid. It started as an online marketplace to match restaurants and grocery stores with potential consumers  but has put in place defensive measures to differentiate itself from competitors. Restaurants and retailers have two products to choose from. The first is “iFood basic,” where the restaurant delivers the order and gives iFood a 12% commission. In this scenario, iFood also charges a flat fee of $100/ month to retailers and restaurants on the platform. The second option is more of a product and service offering rather than simply using the platform as a marketplace. With “iFood Delivery,” iFood takes care of the entire delivery process. Commission fee is 27% and there is an additional monthly flat fee of $ 130. 

iFood has gone one step forward to mitigate potential threats from new entrants and is seeking to add value to its product and platform offering. After a successful financing round in 2018, when it raised $ 500 million, iFood announced its plan to offer analytics-based tools to restaurants and retailers selling on their platform. In addition, it has announced iFood Shop, a marketplace for goods restaurants and retailers buy for their operations. The combination of these two products will add further value to restaurants’ performance. 

Innovating to become an Analytics & Financial Services Provider

While strong network effects and first mover advantage allowed for iFood to scale up quickly and get millions of users on its platform, barriers to entry into the marketplace/delivery app model were low. UberEats and Rappi have also gained significant user share and multi-homing is pervasive. The move to become an analytics and financial services provider is important to increase restaurants and retailers’  stickiness and create additional revenue streams for the company. It can also be a source for iFood to negotiate exclusivity contracts and decrease its vulnerability to multi-homing. 

As an analytics provider, iFood is investing in technology and machine learning to offer restaurants data an analytical tools that will increase their performance. A dashboard can offer restaurants information on their most popular products, peak times and an ingredient consumption trend. In addition, it is can provide the optimal delivery distance as it cross checks the customers’ delivery address with the rating it gives to food temperature, quality etc. 

With iFood Shop, the platform will act as a marketplace for products that its restaurant and retail partners buy for their operations from food ingredients to packaging. Partners would be able to use the revenue generated from sales on iFood and therefore reduce their receivables’ time, which is of around 30 days. In addition, retailers can benefit from price reductions on items on the iFood Shop platform due to efficiencies generated through the online marketplace.  

If successfully implemented, iFood has a real shot at sustaining its lead and ensuring its long term profitability. One of the dangers of highly competitive platforms that are prone to multi-homing is a race to the bottom in terms of price. Ifood’s ability to differentiate itself and create a food ecosystem will secure its pricing strategy and ensure attractive margins. 

 

Sources:

https://www.forbes.com/sites/angelicamarideoliveira/2018/10/05/ifood-evolving-online-takeouts-to-driving-financial-inclusion/#332b984b5c1a

https://www.forbes.com/sites/angelicamarideoliveira/2018/11/13/brazilian-startup-ifood-raises-500m-in-latin-americas-largest-funding-round/#199becee4b22

https://www.reuters.com/article/us-brazil-retail-ifood/brazilian-food-delivery-app-ifood-looks-to-grow-in-retail-in-2020-idUSKBN1YH2JV

https://www.meioemensagem.com.br/home/marketing/2019/02/20/ifood-lidera-em-delivery-mas-concorrencia-aumenta.html

https://www.techtudo.com.br/noticias/2019/04/ifood-uber-eats-ou-rappi-compare-cupom-de-desconto-frete-gratis-e-mais.ghtml

https://restaurante.ifood.com.br/

 

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1 thought on “ifood: Innovation and Differentiation for Sustainability

  1. Thanks for writing on such a unique company. I’m a bit confused on whether iFood sees itself longterm as a food delivery business or a marketplace for restaurants to buy the goods they need? If it’s the former, I can see them suffering from multi-homing and competition from uber eats. If it’s the latter, I’d like to know what makes them so sure they have a stronger value proposition than the current channels that restaurants use to buy goods. These strategies don’t feel like they pass the “better together” test that we covered in STRAT. How do they complete or complement each other?

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