Network effects and market concentration in food delivery
In a previous post, “From Take Eat Easy to Takeover,” the rise and fall of the Belgian platform Take Eat Easy highlighted the formidable power of network effects in the food-delivery sector. A larger user base attracts more restaurants, which in turn draws in more customers. This virtuous circle leads to increased platform value, thereby reinforcing the success of early movers. However, this dynamic can quickly concentrate the market. As seen when Take Eat Easy faced deeper-pocketed competitors, once a rival gains an advantage, the network effects become self-reinforcing, leaving little room for late entrants. The result is a classic “winner-takes-most” scenario, with a handful of large platforms absorbing the bulk of demand. A case in point is the recent acquisition of Deliveroo by DoorDash.
Food delivery vs. grocery delivery: What changes?
Despite superficial similarities, food delivery (meals) and grocery delivery have distinct operational challenges and network effects. Food-delivery platforms thrive on real-time logistics and tight delivery windows, rewarding dense, urban networks and driving strong concentration. The value of the platform to users scales rapidly as more couriers and restaurants join, making network effects powerful and broadly applicable in urban areas.
By contrast, grocery delivery involves a far broader set of products and longer fulfillment cycles. Consumers may not expect instant delivery, and the logistics are more complex (spanning perishables, non-food items, and larger baskets). While network effects still exist—more buyers attract more suppliers and vice versa—these effects are inherently more local, segmented by geography, and moderated by customers’ willingness to wait or self-supply via local stores.
Synergies between food delivery and grocery delivery
Despite these differences, the boundaries between food delivery and grocery delivery are becoming increasingly blurred, with platforms looking to capitalize on both markets. Food delivery companies have a strategic advantage because they can leverage cost synergies by utilizing their existing delivery workforce for groceries during off-peak meal hours, thereby boosting overall operational efficiency. Because food delivery generally produces a higher take rate, these platforms can subsidize the lower-margin grocery segment, making it more financially viable to serve both markets.
Partnering with local grocery stores is a natural and advantageous extension of the food delivery platform model, allowing these companies to expand their product offerings and enhance customer choice. As more large grocery retailers join, both the convenience and variety improve for end-users. For e-commerce companies, those with an inventory-based model—managing logistics and delivery in-house—may achieve even greater synergy and control over the customer experience than pure marketplace players that rely on third-party inventories. This integration across food and grocery not only creates cost efficiencies but also fosters growing consumer trust and loyalty. The next video explains all this.
Room for niche players: The Citymall example
The recent $47 million funding round for Citymall, an Indian grocery startup, illustrates how local network effects in grocery delivery create opportunities for smaller, specialized players, even as large food delivery platforms seek synergies with grocery delivery. Unlike quick-commerce giants aimed at ultra-fast delivery in major metros, Citymall targets India’s value-conscious customers in tier 2 and 3 cities, offering lower prices and fewer delivery frills. Instead of competing on speed, Citymall differentiates through product selection and efficiency, building a model where the network effect is strong—but firmly tied to local market needs.
This “localness” reduces the winner-takes-all dynamic so prevalent in food delivery. Platforms like Citymall can identify pockets of underserved demand, tailor their operations accordingly, and avoid direct battles with giants. Local specialization, partnerships, and unique fulfillment strategies enable them to carve out defensible, profitable niches—even as larger platforms expand.
The balance: Differentiation, network effects, and Minimum Viable Platforms
Can niche platforms like Citymall thrive in the long run? The answer depends on the delicate balance between differentiation and network effects. As explored in my posts on the Minimum Viable Platform (MVP) concept (see here and here), successful platforms often begin with a laser-focused approach—targeting a small geography or niche—and grow by leveraging feedback and local momentum before attempting broader expansion.
A minimum viable platform must be both “minimum” enough to operate cost-effectively and “viable” enough to attract a sufficiently large base of early users to ignite network effects. If a niche is too narrow, the platform cannot reach critical mass. If it’s too broad, the startup risks being overwhelmed by incumbents or incurring unsustainable costs. For Citymall and similar ventures, success will rely on identifying niches large enough to benefit from local network effects—yet unclaimed or poorly served by bigger rivals.
Conclusion
The logistics and network effects that make food delivery such a concentrated market are not identical in grocery delivery. Local network effects in the e-grocery sector open the door for niche platforms to innovate and compete. The prospects for these startups depend on picking the right balance between differentiation and scale, and on understanding where their “minimum viable platform” intersects with real, local demand. The future of delivery platforms may not belong to a single winner, but to a patchwork of specialized players, each thriving in its own corner of the market.
(During the preparation of this post, the author used GenAI tools to collect ideas and improve the expression. After using these services, the author reviewed and edited the content as needed. The author takes full responsibility for the publication's content. Photos by author or royalty-free photos from Pexels.com.)
