Should restaurants be thinking about the food delivery market? The market itself is fast-growing, customers are demanding more flexibility, and growing economies mean more small diners popping up and crowding the marketplace. But is it something restaurants need to take part in or else be left behind, or something they can safely ignore?
The stats offer a confusing picture of opportunity and stagnation. The U.K. restaurant delivery market was recently valued at £8.1 billion. In the U.S., two-thirds of restaurants now offer delivery, says a report from Technomic Inc.
Food delivery now makes up about 37% of restaurant industry sales and nearly a third of restaurant meals last year were eaten at home – a two-point increase over the year before. However, during the same period, the number of meals eaten at restaurants remained the same – suggesting that an increase in dining in does not lead to expensive meals out.
Whether a restaurant chooses to comply with this new trend depends on their current business model – but for those on the fence, here are some considerations.
The bad – ROI and regulations
Nobody cries for joy when a middleman enters a market. They don’t come for love of food, but profit, and it’s restaurants, not consumers, paying the price.
A typical delivery costs the restaurant around £8, according to consulting firm Capgemini. But customers are loathed to pay much of it: a report from ordering platform Tipster says that 85% wouldn’t pay more than £3.50 for delivery. That’s a big chunk out of the profit of orders, which typically range from £15 to £20.
There are also significant entry and overhead fees associated with delivery. Restaurants may need to re-plan their layout, develop food safety measures for deliveries, and create dedicated checkout lanes for online-order shoppers and backrooms or dedicated parking space for couriers. There are other concerns: there is the risk of cannibalising in-store sales and failing to upsell food and beverages, for example. This means crafting a different business model: restaurants need to be making 25%-30% of their orders from delivery in order for such significant investments to make sense, according to the Boston Consulting Group Companies.
Finally, there is the uncertain regulatory environment to consider. Take the recent Australian ruling against Uber Technologies Inc. – apparently a magnet for these sorts of disputes. The company will no longer be able to charge restaurants for delivery mishaps outside their control.
The original contracts gave UberEats the right to refund consumers and charge the restaurant the fee if something went wrong, even when the fault lay with the courier or company. That the court ruled in favour of the restaurants is a good sign and sets a precedent, while showcasing the unfair contracts that exist in some regions.
As a final note on legal risk: there is growing concern over fraud. The 2019 Fraud Attack Index report from Forter showed increases of around 60% in fraud, year-on-year. There may be other causes, but the poorly regulated, poorly defined market is suspect.
Pros – a somewhat shorter list
The chief advantage to restaurants is the opportunity to market themselves with well-known companies. Delivery companies like UberEats and Deliveroo are household names: smaller restaurants, by getting involved, can leverage some of this notoriety.
That in itself is enough to recommend partnering with these companies, especially if you’re a restaurant with significant delivery turnover already. In which case, this would essentially be just one more channel. Apart from the fee, companies like UberEats (which charges the highest fee, at 30%) demand little in additional investment.
What does the future hold?
Amazon has just invested £460 million in Deliveroo; GrubHub’s market share shrinks as its rivals, DoorDash, makes gains; UberEats, meanwhile, heads for an IPO valued at £16 billion, having only existed for three years. What can we expect to see from the future of the market?
A better deal for restaurants, for one. For the moment, the delivery companies’ only leverage is organised delivery and star-power: a low bar to clear. Amazon’s recent investment will increase competition. The more competition, the lower the commission, the more deliveries. An idealist also hopes for incrementally better regulation.
We also may see food trends dictated in the future at least partly by data collected from these companies. For example, UberEats has consumer data gathered from its 8 million-plus means and uses it to capitalise on dining trends: an article from food magazine The Eater tells of UberEats reaching out to restaurants on its platform and encouraging them to develop Poke bowl ‘virtual restaurants’ (takeout-only) to capitalise on the trend for that cuisine.
It’s clear by the strength of this market that there is money and opportunity there. Restaurants will probably need to adapt – though they may not necessarily need to adopt the technology to do. Those that do, however, are in for a fight even to be given a seat at the table.
Jack Flanagan is a writer living between Berlin and London. He writes about a range of subjects, from science to hospitality. His work has appeared in The Guardian, New Scientist and the American periodical, History magazine, among others. Jack was born in the Highlands, Scotland. He is an aquarist, and often writes about keeping aquariums.
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