Thanks to demand for more convenient service, consumers continue to turn to delivery to fulfill their restaurant fix in a hurry—and the full-service industry is where the fastest growth is taking place.
Delivery has long been a component of America’s pizza parlors and Chinese food purveyors, but now—as time-strapped consumers demand convenience—all manner of restaurants are offering door-to-door To-Go services. Laying claim to this business opportunity is a growing industry of online third-party delivery services, eager to run the delivery relay on behalf of restaurants.
These providers include divisions of fast-growing Amazon and Uber, as well as others that have a history in dealing with restaurants, such as Groupon and GrubHub. Most depend on technological advancements powered by the ubiquitous adoption of smartphones and mobile devices.
Although just 5 percent of restaurant spending is done through online delivery platforms, according to investment firm Morgan Stanley, and pizza makes up more than half of that, delivery services are revving their engines to grow the business. In fact, NPD Group restaurant analyst Bonnie Riggs, who acknowledges that pizza currently makes up 64 percent of the 1.7-billion-trip delivery pie, suggests that full-service restaurants are where the growth is occurring. During the three-year period that ended in May, overall restaurant delivery was flat, an NPD report found. However, when pizza data was excluded, the report found that delivery was up 26 percent—up 21 percent for casual-dining restaurants alone.
NPD also found that diners not currently using delivery services would consider doing so for casual concepts more than any other segment. As a result, “full-service restaurants have the best opportunity for growth in delivery,” Riggs says.
Similarly, Morgan Stanley notes that third-party online restaurant delivery services, which are mainly in larger metropolitan markets, have been gaining traction because of the incremental business the service produces for restaurants. “In our view,” the investment firm’s analysts state, the nation “is in the early days of a significant shift in the access to delivery food,” and the trend will gain steam as various internet-enabled businesses continue to grow and offer more variety.
That’s one reason big companies with infrastructure in place, like Uber and Amazon, entered restaurant food delivery. “‘What else can we do with this vast network of drivers and the efficiencies it brings?’ is the question we asked,” explained Uber’s special projects chief, Jason Droege, at the National Restaurant Association show in May. “To connect people with the food they want has a lot of power.”
People are busy and have less time dedicated to food preparation at home, says Anna Tauzin, senior marketing and innovation manager at the NRA. “They like what restaurants have to offer, and now they want all those options at home.” Two years ago, restaurant sales surpassed grocery sales, the NRA reported. Not surprisingly, consumers have sought more ways to source food from eateries. “As consumer demand has gone up, technology and delivery companies have risen to meet that demand,” she says. Today, UberEats is in more than a dozen markets, and Amazon restaurant delivery, part of its free-delivery Prime membership program, has grown to 12 markets.
Third-party delivery also frees restauarant operators from absorbing “all the other costs—having liability insurance, hiring drivers, and making sure the whole experience is positive. It puts all that in other hands,” Riggs says. At the same time, Tauzin notes, delivery is a means to increase sales and marketing to new customers.
There is, however, a bit of a Catch-22 for full-service restaurants: The biggest users of online delivery are tech-savvy millennials, who typically have fewer dollars to spend. That makes pricier full-serves appear less attractive than less-expensive quick serves. But Riggs notes that by the time a consumer adds the costs of delivery services—minimum order, delivery charge, and tip, for instance— “you might as well go with a casual restaurant, because the cost may be only a buck or two different.”
For operators, certain issues are paramount: food safety, menu integrity, speed of service, and competent couriers, among others. Restaurants that partner with specific delivery services gain more control over these matters.
Increasingly the business model takes on the mentality of a partnership, and many delivery businesses work with the restaurants to determine what foods are offered online—notably foods that travel well. They may also suggest the kind of packaging to use and handle payments on behalf of the restaurant. Some delivery operators even provide photographs of menu items on their website.
The companies communicate with restaurants in various ways, and many provide restaurant operators with an iPad or similar device dedicated to online orders. Drivers are typically equipped with hot and cold bags to keep the food at the right temperature.
In return, delivery companies typically charge a percentage of the online order—often 10 to 20 percent—and most charge a delivery fee.
A few services, such as DoorDash and Postmates, not only sign restaurants as partners, but also offer diners the ability to order from an even wider range of menus. Their couriers can visit any restaurant, order items, and then deliver those to the buyers, via car or bike. Some operators don’t like having little control over how their food travels. “We have received a number of complaints from operators,” Tauzin states.
Both DoorDash and Postmates say they’d rather forge partnerships with restaurants but want to give consumers the choice. “We understand this business is driven by forming deep, lasting relationships with restaurants in the form of supporting them and helping them grow their business,” says Ryan Broderick, head of merchant operations for DoorDash, which is in 25 metropolitan markets. At the same time, he notes, “From the consumer standpoint, we pride ourselves on offering selection.”
About 30 percent of Postmates’ business is with restaurant and retail partners, but “we don’t need a partnership” to provide delivery to a consumer, explains Anand Dass, director of business development. “We are just matching a customer with a courier, who we call a Postmate, who does the transaction on the part of the customer.”