While online food ordering is spreading like wildfire through the region, competition in the sector is expected to stiffen and lead to a wave of consolidations, according to research by global online food delivery marketplace hellofood.

Presenting at a high-powered panel at ArabNet Riyadh 2014, hellofood’s CEO in the Middle East Beschir Hussain said, “While the robustness of the marketplace is assured, the health of those competing in the arena is less certain in the long run. We believe that the business model by its very nature will not allow for much co-existence. Mergers will be key, because economy of scales are important here.”

Online food aggregators function as a virtual intermediary – ferrying food orders from hungry online customers to the restaurants of their choice. Scale is important – online menus with the greater number of options will get more hungry consumers clicking through.

While incredibly convenient for consumers, online food businesses cannot control food preparation and delivery, which is handled by the restaurant. This presents its own challenges.

“In the customer mind, an order arriving late, or the food not being flavoursome, is perceived as a failure of the online food ordering business, not the restaurant. For us, it’s incredibly important to safeguard the entire consumer experience as much as we can, and protect against negative brand associations. That’s why we’ve decided to launch our own food delivery service. We want to make sure people get their orders hot and on time, even though delivery historically falls under the restaurants’ ambit,” Beschir added.

Other challenges in the marketplace revolve around payment methods. Online payment is considered a desirable option, but many online ordering businesses only allow cash on delivery.

The market is booming across the Middle East, with first movers across the region successfully educating customers and restaurants of the benefit of using online ordering services. For consumers, single click convenience is a big draw. For restaurants, it’s a new revenue stream – akin to opening a new branch in a busy mall.

“Channel switching, i.e. people making the switch to the Internet for their food, is well under way in the Middle East. We’re still lagging a little behind Europe, where this shift started in earnest a few years back. But this switch isn’t restricted to food. We’re seeing it across the board, from clothes to electronics to renting cars,” Beschir said. In KSA alone, hellofood research estimates the market to hit EUR 150 million by 2020.

“The online food marketplace is a furiously fast paced world, with decisions being made on strategic as well as tactical levels. Strategically, we invested in online payment for the KSA market a while back because we didn’t want availability of ready cash to limit order sizes. Tactically, fast execution, scaling and the adoption of global best practices all remain key to success,” Beschir explained.  

The discussion was moderated by Omar Christidis, founder and CEO of Arabnet.