Amazon’s Exit from Restaurant Delivery Shows Startups Can Win with Upstream Capabilities

Amazon’s Exit from Restaurant Delivery Shows Startups Can Win with Upstream Capabilities

Companies must develop and accumulate capabilities in order to compete in the marketplace. From Google to Dangote Group, when companies accumulate capabilities, they see themselves operating in the segments of markets with higher value (usually upstream) compared with where many lower-grade competitors usually operate (usually downstream). Dangote Group can deploy massive assets and technical know-how in cement production, making it harder for new entrants and rivals.

Yet, Indomie Noodles won over Dangote Noodles by deepening its capabilities thereby making it impossible for Dangote Group to find opportunities in the noodles business in Nigeria.

I explain how the makers of Indomie noodles used the same strategy Dangote Group had deployed across industrial sectors to defeat Dangote Noodles. The  accumulation of capability which Dangote Group uses to crush competitors did not work because Dufil Prima Foods (makers of Indomie) did the same thing from electricity generation to production, for its noodles business. With their vertically integrated business, there was no left efficiency which Dangote could exploit to improve quality and reduce price. At the end, an established brand won and Dangote Noodles could not dislodge them. Dangote Group later sold its noodle business to Dufil Prima Foods. This shows a practical model anyone that wants to compete against Dangote Group can deploy. Beware: you need to be very solid!

This principle is universal: Amazon is exiting the restaurant delivery business in London and US, as it has failed therein. The pioneering startups are already operating at the upstream with supreme accumulated capabilities. Despite Amazon’s capital, it could not crack the markets – and has to exit. Building moats in your category will ensure you become a category-king and rule for years.

Following November’s closure of Amazon’s restaurant delivery business in London, the company is now shutting down operations in the U.S. The service, which was launched back in fall 2015, was designed to give Prime members another perk — a way to order meals, not just products and groceries — through the e-commerce giant.

But the service has faced much competition, including from local rivals like Grubhub, Uber Eats, DoorDash and Deliveroo (which Amazon invested in) in London, among others. In some cases, they would even discount their services in order to win market share. Amazon, meanwhile, has largely failed to establish itself as a significant player in restaurant delivery in both market share and consumer mindshare. It’s not the first name people think of when they’re looking to order food for lunch or dinner, and the logistics of delivering hot meals in a timely fashion introduces a different set of concerns that go beyond Amazon’s core focus areas.

 

How To Beat Dangote Group: How Indomie Noodle Did It

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