Thought Leadership | A Downside to Disruption & Change?

A Downside to Disruption & Change

Commentary by Craig J Selby

I’m not taking aim at the gig economy per se, but it is a commonality when we look at some of the negatives associated with change and disruption. Don’t get me wrong; I’m all for change, and I’m all for creating new opportunities. But, it doesn’t mean that all disruption and change will be good for all, and it doesn’t mean that the disruption will be good for business as a whole.

Disruptive practices, often associated with the gig economy, and non-asset-holding models of business (eg: AirBnB, Uber, etc) are the catalyst for much-needed change in many industries; but they aren’t all ‘sunshine and roses’. All too often, the businesses that they disrupt end up by losing out; either because they are replaced, or they are forced to lower their pricing to fit into the model – in order to enable profit to be earned by the disruptor.

From a consumer perspective it is all about ‘new opportunity’ and ‘fair game’, but in the end, it may simply end up much the same in terms of results. In the end, markets regulate prices, and the disruption was to the mode of delivery only, but not necessarily the product or value that one receives. This is at least what is emerging in a few scenarios here in South East Asia.

For businesses though, it can be a fundamental challenge. Changing to meet new modes of operation illustrate potential, but that very potential combined with the natural regulation of markets, may result in either a zero sum game, or even worse. What looks like an opportunity for growth may end up the complete opposite – a harbinger of doom.

A great example of this is the food and beverage industry, and the impact that food delivery services can have on outlets. Many outlets rushed to join delivery opportunities. On the face of it, this is a great idea. More customers. But the likelihood for many is it is not extra customers, just changing the method by which customers interact with the business. Why go out when you can have food delivered? Not a big deal as you still have the same number of customers? Actually, it is, as other fundamental changes can occur.

The following article from the New Zealand Herald this morning tackles this issue head on, highlighting how appealing disruptive practices impacted negatively on one business.

I’m not saying it will be this way for all, but we have to be open to the possibility that embracing something may ultimately contribute to our downfall.

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The Downside of Uber Eats: Auckland Eatery Poke Bar Closes a Store After Dine-in Customers Dry Up

When online food delivery service Uber Eats arrived in Auckland two years ago, it proved to be a winner for some small eateries. Many even took on extra staff to cope with demand. But Uber Eats' rise in popularity has a cost - as one Auckland takeaway has discovered.

In the first year of Uber Eats, a company called Poke Bar thrived.

The company's four Auckland stores sell a Hawaiian-styled raw salad with fresh fish, and it is popular among more health-conscious fast food consumers.

Director Joel Stirling said the online food delivery service allowed the business to reach new customers. In the first year after the 2017 launch, they were the third busiest fast food company on the app.

But then two things happened. Uber Eats' popularity exploded in New Zealand, changing the way people ate fast food. And big chain stores like McDonalds and Subway joined the platform.

"At the beginning, before the hype of Uber Eats, 80 per cent of our orders at our Ponsonby store were walk-in and 20 per cent were Uber Eats," said Stirling.

"Now it was the other way around - 80 per cent of orders were Uber Eats."

Poke Bar's Ponsonby store was doing 400 Uber Eats orders a week, and Stirling hired two extra staff to cope with demand.

But there was a big problem: the store wasn't making any money. And the online orders were slashing foot traffic, which was where the restaurant actually paid its bills.

It is an issue being discussed wherever Uber Eats is operating. Restauranteurs in Australia recently spoke about how the service was a double-edged sword, because it helped a brand reach new audiences while aggressively eating into its profits.

Poke Bar's most popular meal is a build-your-own poke bowl, which sells for $15.95. Uber Eats took a 30 per cent cut, and the store paid another 15 per cent in tax. The $6 delivery fee was taken by the driver. So the store took away $7.20 from each poke bowl order.

"You're basically sending food out for free or at cost price," Stirling said. "In some instances it is costing you to send food out."

The bigger restaurant chains paid lower margins of between 20 and 25 per cent. And when they were added to the app, orders at Poke Bar in Ponsonby fell to about 50 a week.

Stirling decided not to renew the lease at the Ponsonby store after two years, and five staff have been laid off. It closed last Friday.

There were other factors in the store's closure, including minimum wage increases, the rising cost of ingredients, and forecasts for a slowing economy. But Stirling said the main factor was slowing dine-in traffic - which appeared to have been caused by Uber Eats.

He said the problems they faced were common. Most cafes and restaurants had margins of between 11 and 15 per cent, so would struggle with Uber Eats' big cut of their earnings.

The online delivery service is driving huge growth in the takeaways sector. It grew by 5.7 per cent, or $148m, last year for total sales of $2.7 billion.

Uber Eats Australia and New Zealand said through a spokeswoman that it placed valued on long-term relationships with restaurants and it wanted them to thrive.

She said the 1200 restaurants which had signed up to the platform chose to do so because it helped them grow their business and reach new customers.

The Hospitality Association, which represents restaurants, has taken a cautious tone when advising businesses about signing up to the service.

CEO Vicki Lee said restaurants that partnered with Uber Eats needed to consider the broader picture, including the potential opportunities and costs.

Some of the things they should consider were the cost of packaging, the commission costs of up to 30 per cent, whether it impacts on their inhouse diners, and whether it actually encourages customers to dine in.

The closure of the Ponsonby store is not the death knell for Poke Bar. It has three other stores at Queen Street, Sylvia Park and Albany Mall which are making money because just 20 per cent of the orders are through Uber Eats.

"We don't hate Uber Eats," Stirling said. "It's great for our other stores. But for people who order it so much, they've got to realise that these stores need foot traffic to pay the rent and pay their staff."

And it has provided an opportunity too. He is considering a "ghost kitchen" - a restaurant dedicated to Uber Eats orders which is often shared with other companies to cut down on costs.

"Business is always changing, and this is one part of it," Stirling said. "Uber Eats is changing the food industry. You either adapt or die."

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New Zealand Herald Article Source: https://www.nzherald.co.nz/nz/news/article.cfm?c_id=1&objectid=12254192&utm_source=facebook&utm_medium=social&utmc_campaign=nzh_fb

Image Source: https://insidesmallbusiness.com.au/planning-management/two-thirds-businesses-not-prepared-disruption