Food delivery and the economies of scale

Alessandro Voltolini, co-founder and CEO of SmartBite

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In many ways, Alessandro Voltolini is something of a contrarian in the start-up ecosystem. A co-founder and CEO of corporate catering start-up SmartBite, he is adamant that the company does not presently require an app. Orders can be made either from a desktop portal, or via a mobile-optimised website. 

The roughly four-year-old company is also in the midst of a pre-Series A funding round and is hoping to add to the US$800,000 it has raised to date. And yet, Voltolini refuses to participate in the sort of eye-watering, cash-burn-for-growth rat race that’s become all too emblematic of the ecosystem. “We do not want to be caught up in the burn game,” he tells Enterprise

However, he insists that SmartBite – like many tech and tech-adjacent start-ups – is a growth company. With recent revenue growth in excess of 20% month-on-month, in addition to six-fold revenue growth in June 2020 compared to the previous year’s corresponding month, SmartBite is certainly growing at pace. 

Thankfully however, one thing is a comfortable constant; an Italian native, Voltolini knows a thing or two about good food. And with SmartBite, he thinks he’s figured out how to profitably get that food to the hungry masses, all without squeezing the margins of already struggling restaurants. 

SmartBite is attempting to build a niche for itself, in what has become a very crowded local food delivery space. Voltolini eschews the on-demand, low-ticket size, in-house delivery, and cost-heavy model adopted by the likes of GrabFood and Foodpanda. Instead, he’s pursuing the office crowd en masse, and is banking on employers making regular, bulk pre-orders for their staff.

Voltolini only adopted this niche in the second quarter of last year, however. Before that, it operated more on the prevalent B2C model, used by the other players in the sector.

SmartBite recently demonstrated the extent of capabilities when in June this year, the company successfully delivered some 2,700 individual meals to employees of insurer AIA Bhd, scattered across various residential addresses, all at the same time. 

In this post-pandemic landscape, with businesses only just starting to open their doors, office buffets, communal lunch breaks, and large walk-in lunch crowds are not going to be popular for a long time yet. 

Ordinarily, this would have signalled the death knell for many restauranteurs working in and around local office districts. SmartBite however, is looking to digitalise the catering supply chain, thus encouraging both traditional caterers (who typically run ad hoc office buffets, in addition to large social gatherings like weddings and annual dinners), as well as primarily dine-in or take-out restaurants, to seriously consider filling bulk meal orders for entire office floors and production lines. 

“B2C food delivery companies typically deliver small meals to individual customers, meaning that individual order values tend to be small. Our order values, however, tend to be anywhere from seven to 10 times that of the mainstream food delivery model. So, while the addressable market is smaller than the B2C food delivery ecosystem, we enjoy better revenues on average, and obviously, so do the 175 restaurants and caterers presently listed on SmartBite’s platform. 

“These B2C food delivery companies also run their own in-house delivery fleet, usually comprised of motorcycle delivery riders. This is by far, the single biggest cost for the B2C food delivery ecosystem, and by extension, the single biggest impediment to profitability,” Voltolini explains. 

SmartBite on the other hand, works with multiple third-party logistics companies in order to facilitate delivery of these bulk orders. Food businesses listed on SmartBite’s platform are free to pick and choose their preferred delivery partners, in addition to negotiating tailor-made delivery charges that work with their own cost structures. 

“We’ve built tools into the business-facing side of the platform that help restaurants and caterers figure out the optimal delivery model and the applicable charges. And naturally, these delivery charges are not borne by the restaurants but rather, by their corporate clients. On the customer-facing side of the platform, invoices are itemised and broken down, so employers know exactly how much they are paying for the food, and how much they are paying for delivery. 

With this model, restaurants are able to defray their costs over very large orders, thus giving them better unit economics and profitability. In fact, Voltolini adds, with these bulk orders, the restaurants themselves could also undertake a portion of the delivery at their own expense, because their costs are now spread over much larger order sizes. This, of course, is not mandatory. 

For its part, SmartBite charges its restaurant network a percentage commission on every order placed. The commissions can vary, depending on food value, as well as the sort of backend tools the caterer is using. However, the commission rates are lower than the broader B2C food delivery ecosystem, and therefore, not as punishing to businesses, particularly in the current depressed business climate. “Our very low-cost structure allows us to keep commissions low, which in turn allows restaurants to keep more of their profits.”

While he does not go into specifics, he tells Enterprise that SmartBite’s overall costs come in at below 30% of the company’s revenue. This is markedly lower than the industry average with its built-in delivery costs. 

“Our costs are primarily focused on customer servicing as well as caterer account management. This allows us to focus on constantly improving the experiences of both the corporate catering clientele, as well as the restaurants and caterers that serve them,” he says. 

Taking a long-term view, Voltolini is bullish on prospects for the regional corporate catering service. The company was founded in Malaysia in 2016, and just last year expanded into the Philippines. While Voltolini is keeping a very close eye on cash burn, he nonetheless hopes to capture between 5% and 10% of bulk corporate catering market share in Malaysia, the Philippines, Indonesia, Thailand, as well as Vietnam. 

He believes Southeast Asia’s catering does roughly US$10 to US$12 billion in annual turnover, so even a small chunk of that market share would translate into major revenue for the company. “Once we’ve hit our regional target market share over the next five to six years, we’ll then want to pursue profitability, which we think we can achieve pretty easily, given our low-cost structure.

“Looking beyond five years, while I am very bullish about this bulk corporate catering niche that we’re making for ourselves, I would also like for us to capture the social catering market. 

“I think there is huge potential to bring our business and delivery model to event management companies, event spaces, and convention centres. In appealing to this segment of businesses, we’d then be well-placed to provide bulk catering services for weddings, annual office events, as well as festive gatherings,” he concludes.