iFood dominates delivery in Brazil, but restaurants and rivals tell how they will react

RIO DE JANEIRO, BRAZIL – On January 6, 2022, the news took many people by surprise: Uber Eats would stop delivering meals on March 7 and focus solely on supermarkets and logistics. The departure of a giant caused perplexity: can no one stand up to iFood? There is no shortage of challengers: everyone wants a slice of the market, from management companies to other huge companies. And interested parties abound: restaurants have critics and complaints to spare.

HOW IFOOD BECAME SYNONYMOUS WITH DELIVERY

Most Brazilians probably have iFood installed on their cell phone. The application has become, for many, the first option when ordering something.

One significant attraction is the discount coupons iFood offers. Until two or three years ago, the cheapest pizza in the northern part of São Paulo was on iFood – and it cost even less with the coupon. Today, it no longer is the most affordable option, and the coupons have disappeared.

“Burning money” with marketing and aggressive strategies was one way to win the client’s preference. “iFood plays with other rules,” comments Renato Almeida, Consumer’s CEO.

Consumer develops management systems for restaurants and since 2017 has MenuDino, which allows establishments to create their own delivery apps.

“The delivery market relies heavily on this cash burn stream. It is a fight of millions and millions of reais. iFood doesn’t make a profit and burns cash to grow,” says Kerler Chaves, CEO of KCMS, a technology company that provides tools for restaurants.

One differential of iFood was to find new ways to get money to burn. That’s what Dennis Nakamura explains. He is a partner at O Board, a startup mentor, and a former iFood manager.

Nakamura calls these new businesses of the company “spin-offs”.

iFood started in 2011 with food sales and, in 2015, entered the delivery market. Then, in 2016 came the resale of packaging for restaurants, followed by other supplies.

It created its own acquirer to not depend on Stone’s Elavon. Then came iFood Pay, with payments at restaurants using QR codes and digital bills.

“In each of these services, iFood charges a portion like any bank or service provider,” Nakamura explains. “It creates and delivers new products and services to its own consumer base and customers it already has.”

However, the former iFood manager says it’s not just a matter of investing all the cash. He highlights other strategies.

One of them is the platform’s algorithms that help restaurants sell more. “That is the biggest goal of the partner that joins iFood,” comments Nakamura.

The app’s payments also gave consumers more security and convenience, besides creating possibilities to gift friends and family who are elsewhere.

Finally, and perhaps most importantly of all, are the delivery people.

In the beginning, iFood was only available to restaurants that already had delivery, but the company went further.

“It got to a point where we also needed to deliver because many restaurants didn’t have and wouldn’t want to have their own delivery people,” Nakamura says. “This made it possible for several restaurants that previously wouldn’t like or couldn’t have delivery guys to do delivery.”

iFood was responsible for 83% of the orders on the so-called marketplaces, which aggregate several restaurants, according to estimates made in the second quarter of 2021 based on invoices issued. The rest was divided between Uber Eats (13%) and Rappi (4%).

The attractions seem many, but some people want to get out.

IFOOD DOMINATES SALES – AND COMPLAINTS

Luise Macedo opened Buena Onda Burritos three years ago in Ponta Grossa, Paraná State. The establishment is on iFood, but the owner is unhappy with the platform.

She complains that the company has adopted a form of gamification, putting challenges for the restaurant to “level up” in the marketplace. And these demands do not take into consideration the reality of the establishment.

“I’ve been on iFood for three years, but I’m still considered a beginner because my menu doesn’t have that many options,” says the owner. She explains that since her restaurant is small, the proposal is to have a few items on the menu, but iFood ignores this.

“It is not within my reality to put seven more items on the menu. I’m not selling candy and lollipops to complete [the requirements] and get out of the beginner phase. To me, that makes no sense at all. These goals are not suitable for many restaurants, especially with small space and a small staff,” said Luise Macedo, owner of Buena Onda Burritos.

If Luise agreed to this, she could “phase out”, improving her ranking on the platform. And what would come next? She says she doesn’t know because the app doesn’t show the following requirements.

Who also has complaints about iFood is Mario Rabelo, one of the partners of Generoso Burger.

Generoso started in 2019 in Largo São Francisco, in the central region of São Paulo City, and moved to the Vila Buarque neighborhood in April 2021. But in 2020, his business abruptly changed with the onset of the COVID-19 pandemic.

Largo São Francisco, a commercial area with many workers and law school students, became deserted overnight.

The way out was to turn to the marketplaces – and face the headaches. Speaking to Tecnoblog, Mario complains about the arbitrariness of iFood.

He says that the application, at times, reduces the delivery area of Generoso from 7 km to 1 km. The justification is the high demand. “If the region is in high demand, I want to be part of that sales moment,” he says.

Another problem is the lack of control over promotions that the platform itself creates.

Mário says that, due to price increases, he needed to make a change in one of the combos on the menu, but he couldn’t do it. iFood had created an offer linked to Coca-Cola, blocking the item.

“I can’t change the value of the combo. You enter the platform in the promotions part, and there is no option to manage the promotions. You have to open a ticket, and it has a 72-hour analysis time. And that’s for something I didn’t ask for. iFood controls this, and in this case, who pays is the little guy. Either I disable the combo or leave it active and take a loss,” explained Mário Rabelo, partner at Generoso Burger.

Generoso Burger also started making deliveries with Rappi but soon gave up. Mário says that the volume of orders through the platform was about 5% of the total, with the rest coming from iFood. Being on a second platform with problems very similar to those of the first was not worth it.

Tecnoblog contacted iFood, but the company did not send the requested answers until the publication of this report.

IS THERE LIFE OUTSIDE IFOOD?

Mario Rabelo and Luise Macedo might be hundreds of miles away from each other, but one thing unites them: the plans to stop selling through iFood.

Today Buena Onda Burritos works only with delivery. Luise, little by little, tries to migrate her customers to her own app and website, made with MenuDino. There, she can sell cheaper, without the iFood fees.

The strategy comes up against a limitation imposed by iFood. If Macedo sends any material about her own delivery service in the orders that arrive on the platform, she risks being fined and losing ranking.

Macedo also wants to increase the Buena Onda location to receive her customers personally.

Rabelo relies on the service in the restaurant to achieve his goal of leaving iFood in 2022.

He says that the application once accounted for 100% of his revenues; today, with the improvement in the pandemic situation, the movement at the location has increased, and the platform represents something between 30% and 40%.

In Macedo’s Buena Onda, iFood corresponds to an even smaller percentage of sales: 20%, and she still has no space to receive clients. The secret is to work the brand in the social networks, direct customers to their own application, and build customer loyalty.

Rabelo wants to test a delivery model with his own delivery men on bicycles for the Santa Cecília region in downtown São Paulo.

He also mentions AppJusto, a delivery app focused on social responsibility.

AppJusto intends to pay the delivery drivers better while charging lower fees to the restaurants. In addition, the idea is to make delivery drivers and delivery drivers partners using a crowdfunding model.

Generoso Burger’s partner criticizes iFood’s precarization of delivery drivers. “They need to make dozens of deliveries to make a buck. They come here and are stressed. Sometimes, we have a long line, and the guy wants to get his delivery right away. It disrupts the movement in the restaurant.

Other companies are keeping an eye on this segment. They know well the complaints about iFood – and the strategies to get out of the app.

ADDING DELIVERY TO THE RECIPE

Renato Almeida, CEO of Consumer, says it is possible to do without iFood, but the restaurant owner needs to invest more time and money and take on more responsibilities.

Almeida says that the fees are the main complaint of the restaurants seeking Consumer.

Consumer, the company behind MenuDino, has an ad-buying tool called ConsumerAds, which works alongside Google’s advertising tool.

Who also came from restaurant management to delivery was KCMS. The company has existed for 23 years, and 15 years ago, it started developing software, first for supermarkets, then for restaurants. Today, it offers delivery systems and has free plans for restaurants.

Chaves, CEO of KCMS, says that, in some cases, restaurants that adopted his solution were able to reduce the fees paid to marketplaces from R$30,000 (US$6,000) a month to R$5,000.

The executive also hits on the need for marketing. “In the pandemic, competition increased absurdly. A restaurant used to compete with ten, 15, and now it competes with 100,” he comments.

Goomer is another company that tries to “welcome” the disappointed business owners in the market.

Present in the sector since 2014, with service and management solutions, it took its first steps in delivery in March 2020, when the first COVID-19 restrictions were imposed.

The company created a menu and online ordering solution in seven days. The items were compiled and sent to the restaurant’s WhatsApp. Today, Goomer serves 500,000 food businesses, including marketers and people who make sweets and cakes at home.

Felipe M. Lo Sardo, co-founder and CEO of Goomer, says that even on iFood, restaurants need to do marketing. “Everyone is on iFood, so the restaurant needs to show up, with free shipping and discount coupons, which the owners bank out of their pockets.”

The loyalty Luise mentions is also highlighted by Lo Sardo. He says that, on average, 80% of consumers are already repeat customers. “It is five to seven times cheaper to retain a customer than to acquire a new one,” says the executive.

Goomer already had in its portfolio tablets for waiters, totems for consumers, and orders via QR Code. Delivery was, therefore, a natural path.

And with all these digitalized processes, the restaurant owner can get to know his client better, something that iFood and other marketplaces do not allow. Both Luise Macedo and Mario Rabelo complained about this lack of access to the data of those who order from their restaurants using the platforms.

BIG CHAINS AND TRANSPORTATION APPS ARE COMING

Consumer, KCMS, and Goomer have similar paths. They started with solutions for customer service and management in restaurants and now also offer products for delivery. But they are not the only ones who want a piece of the cake.

Who is also keeping an eye on is Quiq, who made news in July 2021 when obtaining authorization from the Administrative Council for Economic Defense (Cade) to compete with iFood and Rappi.

Quiq was born from a union between technology hub 4all and restaurant owners, such as Outback, Giraffas, Rei do Mate, Pizza Hut, Montana Grill, Spoleto, and Marfrig.

“We took a proposal to players in the industry precisely to enable the structuring of an open platform for the market, which helps in the digitalization of the operation of restaurants throughout Brazil,” says Cristian Mairesse Cavalheiro, CEO of Quiq, in a conversation with Tecnoblog by email.

“Our purpose is to bring a management autonomy to the restaurant, enabling it to properly manage and organize all the orders that come in through different delivery channels and its own service operation,” adds Cavalheiro.

Who has been eating around the edges is 99Food, from 99, most famous for its transport service with private drivers.

It is not by chance that 99Food is not visible in every capital or large city. The company spoke with Tecnoblog by email and explained its plan.

“Our strategy is to start our operations in small and medium-sized cities. We start small to ensure we deliver the best and most varied products with the best quality and price to our consumers,” wrote 99.

One of these medium-sized cities is precisely Ponta Grossa, where Luise Macedo owns Buena Onda Burritos. She says that the company has promised great attractions, such as lower rates than iFood for six months, but past experiences with other platforms have left establishment owners wary.

99Food also does not work with exclusivity contracts, which is one of the major criticisms made to iFood. 99 and other companies have appealed to Cade to prevent this type of agreement.

“In June 2021, 99Food joined Rappi Brasil, Uber Eats, and Abrasel [Brazilian Association of Bars and Restaurants]. We have taken a representation to Cade so that the body regulates the performance of iFood and prevents the imposition of barriers to the market and the growth of its brand,” explains the food delivery arm of 99.

CAN MORE PEOPLE FIT AT THE TABLE?

So here we are: iFood dominates more than 80% of the marketplaces’ delivery orders, Uber is out of the restaurant delivery market, and several companies are interested in the sector. Will there be room for everyone?

Nakamura says yes.

“People forget that the delivery market is not just made up of iFood, Rappi, and Uber Eats. Those are just the major companies in one delivery segment, the segment of marketplaces in larger cities, which function as true food courts,” explains Dennis Nakamura, partner at O Board, startup mentor, and former iFood manager.

For him, there are opportunities to be explored in the current market. “A company will never be able to solve all kinds of issues related to its business, and where there is pain, there is opportunity. Not many know, but iFood, Uber Eats, Rappi, and others have many flaws that the little guys can take advantage of.”

Goomer’s Lo Sardo says that marketplaces did the first step of market digitization. Still, the natural path is for establishments to look for platforms to create their own sales channels and direct connections with customers.

“They are different things. We need to evolve with the platform not to let the marketplace eat the market as a whole because it is not sustainable for small and medium businesses,” explains Goomer’s CEO.

Chaves, from KCMS, believes that restaurants will seek a second option besides iFood, either in another marketplace or in their own platform.

Almeida, from Consumer, considers that the market is too big to be swallowed by a single company. “I was once terrified and anxious to see so many players with so much money, but today I also share this point of view.”

He thinks that no single company will be able to deliver all the solutions that restaurants are looking for, which goes well beyond delivery to management and marketing.

Another point is the expansion of the market itself. A survey conducted in 2021 by 99Food identified that 53% of delivery app consumers are from classes A and B, and another 43% are from class C. Therefore, there is “a huge contingent of people to reach,” says the company.

The reading is similar to Quiq’s: “We believe that there is still a space to be occupied in our country’s more than 600,000 establishments. Therefore, it is feasible that new niche players will occupy a certain relevance.”

Rabelo hopes consumers themselves can start to change this scenario.

“I think that as iFood’s problems start to appear and people start to give up using their product, new companies will begin to appear. It’s the natural thing in capitalism. We hope they will be companies that can offer better conditions,” said Mário Rabelo, partner at Generoso Burger.

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