Should Lyft enter the food delivery business?

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Should Lyft enter the food delivery business?

Asked at Google over a year ago

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problemsolver · Answer 1 · 2021-12-08T20:46:15+0000

I suggest to consider multiple factors while answering this question, starting from Company mission and potential goal setting and diving deeper into the following areas as: User impact, Costs involved, Competition, Capability, Impact on the entire product eco-system.

Factors	Reasoning	Score using Do/Don’t/Consider
Company mission	This opportunity resonates with Lyft’s mission “Improve people life through the best transportation” and core values such as building the cities around people. Food is essential part of every day life and with all today’s speed of life people are not always able to care about themselves and they can neglect themselves easily. It means that if they didn’t prepare/order/cook food they would be eating unhealthy/skipping the routine or planning extra commute to get the food. Lyft can help with delivery, reduce commute time, people would not need to take a car in order to go to the supermarket, would not increase traffic and would be able to get the food from the beloved place. As a result people are eating healthy and there is less traffic.	Do from mission standpoint
Goal of the initiative	Goal could be focused around increasing the engagement of existing users. Lot of users, if we speak of the US specifically, already have a Lyft app, so such an initiative would unlikely bring many new users but can increase the engagement of existing users. Engagement could be measured by number of deliveries, or even maybe via ratio: number of users/number of deliveries. Trade-off could be really the distraction from core transportation use-case.	Consider
Users impact/Addressable Market	Riders: Drivers: a. I assume there could be ratio of drivers with cars that can not take passengers but can take food when they drive b. Also drivers of small transport could be involved into that. especially in the cities with great weather they could drive w/o seasonal impact and negative health impact Riders: end users can stay at home and order the food when they are hungry. Restaurants: could scale their delivery or become fully dependent. can bring leads through popular Lyft app	Do
Costs	I suspect that the transactional fee for such delivery would be smaller compared to the ride fee, as it shouldn’t impact the usual food price much. So if small ride could cost $5-$8, paying on top of the food order such fee could be too expensive	Don’t
Capability	From a product capability perspective there is already a strong foundation that could be reused for building the product, even though core use-case would differ much. Users need to ride from point A to point B, while when ordering food you are mostly requesting it to home or to office. However functionalities like map, visibility of the driver, delivery tracking, pickup, payment, partially feedback could be reused/adjusted to achieve this.	Consider
Competitors	There is a lot of the competition in this aread users can go to the restaurant or cook themselves can use other delivery services big players entere the market strongly: UberEats, DoorDash	Strong Don’t
Impact on the entire ecosystem	I think it could be a distraction from core transportation use-case and it's value.	Don’t

Summary: I would suggest no to enter the food delivery business, even though some of the factors look compelling, I think it will be difficult to achieve strong value for users and company mission.

Success of this initiative is also higly dependent on partnerships with restaurants and their success and would require lot of attention in this area.

Santhosh Kumar · Answer 2 · 2021-12-30T07:12:42+0000

Apporach:

1. Strategic questions to understand the scope of the problem and business goal

2. Create a strategic framework to evaluate a go/go-no recommendation in terms of market size, company fit, competitors.

3. Go/go-no decision

Strategic questions

Candidate: Are we targeting US or WW, because it impacts the market size, government regulations that lyft need to deal with, partnership to build with restaurants, etc

Interviewer: US

Candidate: Does the delivery business cover only food or both food and alcohol?

Interviewer: Only food

Candidate: I assume the goal is to expand the customer base by service key use case, at the same time, increase the value of the lyft ecosystem

Interviewer: fair enough

Framework to evaluate the decision

Market size:

300MM US population; 80 is life expectancy; age 15-70 eat outside at regular interval (70% of US population; 210 MM)

On average, each person orders food once in a week, that is 210 MM total orders per week

On average, cost of food is $30, that is $630 MM total order per week or $30 B total order per year

Even if we capture 10% market share, it is $3B opporunity each year. Market size looks very atttractive.

Profit margin:

Food delivery business is cut-throat business and it carries very low profit margin.

Lyft need to invest in operational excellency initiatives to drive revenue/profits.

Company fit:

Relationship with restuarants: Lyft need to build a relationship with restaurants. Lyft would need to on-board restaurants on the platform to break into the food delivery business.

Relationship with drivers: Lyft built relationship with drivers already, now it can offer flexibility to drivers to handle food delivery in addition to ride share. This would also create opporunitites for drivers to generate additional income.

Relationship with customers: Many users that use lyft for ride sharing would order food. Lyft can serve additional use cases for existing lyft users and would also help to attract new users.

Technology know-how to match drivers and customer orders: This technical know-how would help to lower the operational cost, reduce the delivery time.

Lyft can leverage existing technology and operational capbilities in terms of relationship with drivers and customers.

Thus food delivery business fits well with the lyft's existing capabilities and would be great way to expand the revenue stream.

Competitors:

Major competitors are Ubereats, Door Dash, Grubhub, and their subsidiaries.

Unlike Door Dash, Grubhub, Lyft has unique advantage that it can tap into existing users that already use lyft for ride-sharing. This will significantly help lyft to gain a market share.

Go/no-go decision

I would recommend to enter a food delivery busniess, given the huge market opportunity, ability to leverage existing technology/operational capabilities, tap into existing user base to gain on the competition.