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With The Rise Of Online Food Delivery, Are Restaurants Flinching?

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In a 2011 Cornell survey of 372 U.S. restaurant operators, less than 10% of takeout or delivery orders were shown to be done online. Technomic said that this makes third-party delivery aggregators, like DoorDash and Uber Eats, scale the size of the fifth-largest U.S. restaurant chain, with $10.2 billion-worth of ordered meals in 2018.

Restaurant consultancy Aaron Allen & Associates CEO Aaron Allen said, “The consumer migrated towards having this expectation of things being at our fingertips, from other industries — the Amazon effect, you could argue, contributed to some of this.”

Restaurant chains like McDonald’s, Starbucks, and Chipotle Mexican Grill are among those who have already partnered with delivery services to adapt to the foodservice game’s change in the landscape. However, for some, this also means that the extra sales made from delivery also hint lower profit margins and major operational changes. This is evident in cases like Chipotle’s wherein second kitchen lines were added to locations in 2016 to manage and speed up the service of online orders. Increased delivery costs then sprung up in Chipotle’s profits during the third quarter.

 “We see this a lot more in the sophisticated restaurant chains that are beginning to really embrace off-premise and delivery,” claimed Trevor Boomstra, director of AlixPartners’ restaurants, leisure and hospitality practice. “They’re adapting their physical presence and their layouts.”

This food delivery trend was given birth to by startup aggregators partnering with independent restaurants. These were Postmates in 2011, DoorDash in Palo Alto, California two years later, and Uber, in 2014. The game-changer, according to Technomic principal Melissa Wilson, was the exclusive partnership of the largest U.S. restaurant chain by sales, McDonald’s, with Uber Eats in 2017 to offer delivery. This, though, wasn’t a very good arrangement for its U.S. franchisees as complaints about the high delivery fees per order surfaced, entailing 15% to 30% charge on every restaurant-fulfilled order. In part, commission fees have been decreasing due to competition.

This year, McDonald’s’ renegotiated Uber-Eats-contract reported a push for lower commission fees and an end to its exclusivity. Its partnership with DoorDash and GrubHub was later reported, and a forecast of its $4 billion global delivery sales launched in 2019.

This intensity in the delivery market has put Chinese restaurants and pizzerias – the two types of eateries that typically offer delivery services for their food – at a competitive space. Domino’s, for example, bet that the business models of delivery providers are short-lived, with GrubHub reporting its $1 million third-quarter net income, down from $23 million last year.

GrubHub, the only profitable delivery provider, has a stock market value of $3.7 billion – up 17% since its public entrance in 2014. In 2017, it hit an all-time high trade with $149.35 a share, although its about-$40 per share now sounds devastating.

Delivery apps DoorDash, GrubHub, and Postmates are still looking to go public next year, even with such questionable profitability and crackdown possibilities, zero in on The District of Columbia’s lawsuit against DoorDash for its former tipping policy that led the New York City Council to soon consider legislation that would focus on commission rates.

In an effort to boost market share while cutting costs and combining resources, companies DoorDash and Amazon announced their purchase of Square’s Caviar and their stake in U.K. delivery company Deliveroo, respectively.

“It’s important for the restaurants to be thinking about and know how to select the right partner, knowing that there’s going to be consolidation likely going to happen,” AlixPartners’ Boomstra said.

Another change to be anticipated in the delivery market is the improvement in food quality that won’t be met by letting meals travel over long distances. Some restaurants and venture capitalists are already exploring the use of ghost kitchens, like Kitchen United and Zuul Kitchens, and offsite locations exclusively for delivery orders to address this challenge. 

“A lot of this is a means of improving productivity for a decades-old business model that needed to be reinvented — the labor model, the cost of building out restaurants, where to put them,” consultant Allen said.

Restaurants, though, shouldn’t be all-out when it comes to this delivery puff, for economic downturns could very likely produce less disposable income for the consumers’ delivery expenditures. Although successful at present, the food and beverage industry, like all industries, still have bigger changes to go through.

 “Two and a half years ago, some of the largest delivery companies in the world were still trying to convince chain operators of the merits of it,” Allen said.

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Big Change Ahead: Facebook On Monetizing WhatsApp

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Just 14 months earlier, the management of WhatsApp stated that the company’s main monetization mode will be advertising. But at present, there are plans to put the ads in WhatApp on hold. The advertising team was disbanded and their code was also deleted. 

Facebook planned to begin placing ads in the WhatsApp status which is similar to Instagram Stories. The prototype was supposed to be previewed in May. But with the hold status of this plan, it is no longer certain when the feature will be released. 

The WhatsApp Status ads are comparable to Instagram Stories and both features almost have the same number of users. However, Instagram users are much more focused on the North American market. 

One of the challenges here is that the ability of the marketers to target ads on the app and they may not get similar results to that of Instagram. WhatsApp is more private while on Instagram, users share and basically broadcast what their interests are. 

It’s possible for Facebook to use its existing user data from other apps. But there’s a good number of WhatsApp users who are yet to connect their Facebook account to the ones they have in WhatsApp. 

The company acquired the messaging app in 2014 for $19 billion. Its investors are probably wondering how Facebook will monetize the service which has over 1.5 billion users. Instead of adds, Facebook is exploring on enabling businesses to connect with their consumers using WhatsApp. 

One of the efforts toward this direction is the WhatsApp Business. The app was launched a couple of years ago. A paid API was then added after a few months. WhatsApp Business encourages businesses to quickly respond to clients. It also makes it easier for businesses, both big and small, to get in touch with their consumers using the messaging app. 

Facebook gave its investors an update last year. It stated that WhatsApp Business already has 5 million active businesses. Since then, the iOS version of the app was released. The most recent feature of WhatsApp Business is Catalogs. With it, users can discover products from businesses and merchants that they correspond with on the app. 

Another thing that Facebook is working on is developing a payment platform on the messaging app. They’re going to start it in India. However, this feature has been delayed because the Indian government is concerned regarding data localization. At present, Facebook is looking into other ways that it can extend Facebook Pay to the company’s other apps. 

The focus of Facebook is providing businesses with more tools so that they can connect with their clientele better and easier. This step away from invasive ads will most likely pay off for the long term. What the company needs to create is the habit of learning, discovering, and purchasing products on WhatsApp which is common with Instagram users. 

The company can provide paid tools for various businesses so that this habit may be facilitated. After making the messaging app a place for commerce, it may have a more significant opportunity in advertising with the WhatsApp Status. 

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What Defines A Small Business & A Large Business?

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According to the U.S Small Business Administration or SBA, a small business is a business that comprises of independent owners and is an entity that is not dominant in its respective field. The size of a business is essential because there is an array of laws that applies to large companies — also, the size of business assists in determining the company’s entitlement for federal contracts and programs.

To determine the size of a business, the average number of employees, as well as the average of annual receipts, are taken into account by the federal government. Usually, a company that has 500 or more employees and have an average of $7 million in annual receipts are considered to be under the large business category. However, there are exceptions to these standards in some industries.

Based on the SBA guidelines, some manufacturing companies which employ 1,500 individuals can still be determined to be a small business. While on the other hand, in the construction industry, a business that has an annual receipt of $33.5 million is defined to be a large business. In the dredging industry, if a company has a total average revenue of $20 million or less, it is a small business; this also applies to specialty trade contractors who have an average annual receipt of $14 million or less.

Research & Development Businesses

Businesses who are in the research and development industry are the only service businesses where the government considers the size of employees to determine whether it is small or large. Commonly, retail companies who have an annual receipt of $7 million or more is a large business. Although, a grocery store, car dealer, electrical appliance business can be considered under the small business category if it has an average annual receipt of less than $35.5 million.

Foreign & Domestic Affiliations     

International and Domestic Affiliations are also subject to classification. If an affiliation has over 50 percent of voting stock, then it is considered a large business.

The SBA says that a large business entails a CEO having power over a company due to widely distributed stocks, several people who have the same business interests, or an economic dependency upon a company.

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Apple’s Services Business Is Expected To Be Valued At $650 Billion This Coming Year

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The 2019 year marked the success of Apple’s services business as the company introduced a bunch of new services last March of 2019. Offerings like Apple Card, Apple TV, and Apple Arcade are aimed to latch consumers into patronizing the brand. 

Dan Elves, a Wedbush analyst, had expressed his expertise and said that Apple Services could be worth $500 billion to $650 billion by the year 2021. The anticipated worth of the company’s services business will be similar to Facebook’s value in the present day. 

Having said that, the company is still expected to grow over the next coming years, especially if the 5G iPhone supercycle hits the market; this will also increase the company’s sales as users will upgrade their units to take advantage of the 5G wireless networks. 

Today, there are an estimated 350 million iPhone users in the upgrade window, and that number is expected to increase by 50 million over the next two years. 

Growing Out Their Gross Margin 

Apple just recently broke down its cost of sales, and the numbers did not disappoint. Experts predicted that the gross services margin would be about 55%, but in the year 2018, the company’s services gross reached over 61% and rose to 63.7% in 2019. Those numbers still have the potential to grow over time; however, investors should still remain cautious because the company is making long-term investments with its services business. 

A business worth $60 billion with a gross exceeding 60% is undoubtedly a precious asset. 

For a clear standpoint, Facebook has garnered $66.5 billion in revenue with a gross margin exceeding 80% over the past 12 months, and the market presently values the company at $630 billion. Its revenue is also increasing at a faster pace than Apple’s services business. 

Nonetheless, Apple’s services business has no comparison, as each business is unique. With its high-margin and fast-growing source of revenue, it’s vital characteristic is in the Apple ecosystem. This feature is an advantage for the company because Apple device owners are likely to purchase devices and subscriptions from the tech company. 

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