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Food delivery biz cooking in Nashville

Delivery accounts for $30 billion of $500 billion U.S. restaurant industry.

Lizzy Alfs
lalfs@tennessean.com
  • Nashville has at least eight food delivery companies
  • Third-party services typically charge a delivery fee, processing fee and driver tip
  • Amazon and Uber recently debuted in the food delivery sector in other U.S. markets

Move over pizza and Chinese food.

Rachel Traughber, of Ashland City, Tenn., who has been a delivery driver for Favor for about 10 months, picks up a customer's order at Cochon Butcher on July 19, 2016, in Nashville, Tenn.

A slew of new food delivery companies in Nashville promises to fulfill customers’ cravings for everything from sushi to fresh-pressed juices and hot chicken.

With a few taps on a smartphone, people can eat what they want, when they want, all without leaving the house.

DoorDash is the newest player in Nashville’s food delivery landscape, where at least seven other companies are vying for market share. The services are just one component of the burgeoning on-demand technology sector, which makes it possible to get groceries, alcohol and even gas delivered.

“The way we think about ourselves is really a technology company first — it’s about efficient delivery,” said Alex Kown, Nashville city manager for DoorDash.

Launched out of a Stanford University dorm room in 2013, the company is now active in 27 major metropolitan markets and has raised more than $186 million in venture capital.

As of Thursday, Nashville area customers could order from more than 450 restaurants on DoorDash.com and the DoorDash mobile app, including BrickTop’s, Flip Burger Boutique and Sunflower Cafe. The company’s fleet of drivers picks up the food and delivers it to customers’ doorsteps.

DoorDash joins competitors including Grubhub, OrderUp, Favor, Postmates and Doorstep Delivery in the Nashville market.

The services typically charge a delivery fee, service fee and a tip for the driver. Favor, for example, charges a $5 delivery fee in Nashville, along with a 5 to 9 percent processing fee for the cost of items and then requires a minimum $2 tip to the driver. Most companies try to deliver in less than one hour.

Postmates and Favor don’t limit their services to just food; couriers will bring customers paper towels from Publix, a birthday card from Walgreens or a shirt from J.Crew.

“I think that there may be some price concerns, but among those that can afford it, I’m sure they are going to use it,” said Bonnie Riggs, a restaurant industry analyst at NPD Group.

The convenience of delivery is worth the upcharge for Germantown resident Joseph Minga, who figured he saves money on gas and parking. He uses a food delivery company about three times a week and once had Postmates deliver him headphones from the Apple store.

“I work all day and I want to come home and take my dog for a walk,” Minga said. “…Then there’s always the convenience factor of ordering while I’m about to leave work and then I come home and it’s ready so it saves me plenty of time.”

Roughly $210 billion of the $500 billion restaurant industry is food eaten off-premise, according to a Morgan Stanley report. The delivery market accounts for about $30 billion of the total pie.

Funding to food delivery startups reached record highs in 2015, when investors poured $5.5 billion into the category, according to CB Insights.

But is the food delivery market in danger of overheating?

Rachel Traughber, of Ashland City, Tenn., who has been a delivery driver for Favor for about 10 months, rings the buzzer of a customer, Tuesday, July 19, 2016, in Nashville, Tenn.

Not according to NPD Group, which reported food delivery has grown by 69 million orders in the past four years. Pizza delivery still accounts for more than 60 percent of food delivery visits, but that category is shrinking as consumers look to a variety of restaurants.

“In terms of room for growth, we are just at the tip of the iceberg because now people are looking for convenience,” Riggs said.

In her research, Riggs counted 35 third-party food delivery companies across the U.S. Relative newcomers to the space include behemoths Amazon and Uber. She predicted companies will look to expand into smaller markets to gain more market share.

Third-party food delivery services can boost revenue for restaurants, but it’s critical those companies deliver on speed and consistency to protect restaurants’ brands.

The companies that offer the best service will rise to the top, she said.

Minga said he’s often lured by promotions such as free delivery.

DoorDash, which officially launched in Nashville this month, is giving first-time customers $10 off their order. The company also partnered with local restaurants to offer deals, such as a free juice from Daily Juice and free sushi burritos from Nomzilla Sushi.

Lilli Krauss, operations manager for Favor in Nashville, said the company focuses heavily on customer service to try to edge out the competition. The food delivery startup has raised $16.9 million in venture capital since its launch in 2013.

“We believe that great service, a simple product and a loveable brand can result in high growth despite numerous companies also doing the same thing,” Krauss said.

Food delivery by the numbers

$500 billion: Total U.S. restaurant industry

$210 billion: Restaurant food eaten off-premise

$30 billion: Total food delivery market

$11 billion: Online food delivery market

Source: Morgan Stanley

Rachel Traughber, of Ashland City, Tenn., who has been a delivery driver for Favor for about 10 months, inputs a receipt on July 19, 2016, in Nashville, Tenn.

Reach Lizzy Alfs at 615-726-5948 and on Twitter @lizzyalfs.