You're probably reading this on your lunch break between bites of Caesar salad or pastrami on rye at your desk, unless you're a student at Sui County High School. Administrators obsessed with test scores there have removed seating from the cafeteria so students hurry back to their studies. Their lunch breaks average a mere ten minutes. If there's barely even time kids to eat a meal, what hope is there for adults to actually spend time in the kitchen cooking a meal?
This is why food delivery services are exploding. In the past five years, use of delivery has grown 300% faster than dine-in at restaurants. Swiss bank UBS estimates that the market for food delivery will grow 10x from $35B today to $365B by 2030. More than half of US diners order delivery or take out every week. VCs invested $3.5B in food delivery companies just last year alone. The food delivery market bifurcates into restaurant delivery and grocery (plus meal kits) delivery. This post focuses on restaurant delivery. Tech companies and restaurateurs alike are all jumping into the fray, looking to perfect delivery. This explosion in the delivery sector has been powered by gig economy couriers "employed" by delivery companies that work with restaurants to fulfill online orders on demand. Eating has been a cultural and communal experience for all of human existence. So how did we arrive at this point with strangers that don't even work for restaurants dropping off our meals?
The easy answer is that we've got less time. However, the math doesn't quite check out on that. Thanks to work regulations like the 40 (or 35) hour work week, most workers in industrialized nations have more free time than in generations past. But a deluge of distractions keep us from allocating that time to the kitchen. Free time simply gets spent doing even more work, running errands, or scrolling endless social feeds. Coupled with our perceived lack of time is the rise of the convenience economy
Then there's the smartphone and all of its associated time sucking apps. Increasing trust and reliance on those apps shifted cultural sentiment to be more trusting of all the services they offer. Once you get comfortable enough to hop in a stranger's car with the assistance of a ride-sharing app, you're much more likely to trust that same app to recruit strangers for delivering your food. That cultural shift gives rise to the state of food delivery as we know it today. Through the network effect, delivery companies grow in utility to their customers with each additional partner restaurant. And the restaurants that remain outside those delivery ecosystems risk losing out on business.
The food delivery industry consists of there primary actors, customers, restaurants, and delivery service providers (DSPs). Some companies have attempted vertical integration models to prepare the food and deliver it, but mostly the restaurants partner with DSPs to broker food delivery to customers. Each stakeholder has its own interests, which sometimes compete with the others. Here's an overview of where they stand:
There has never been a better time for food delivery customers. Gone are the days when pizza or shrimp fried rice were the only delivery options. Diners now have access to a smorgasbord of selections spanning all types of cuisines. The only thing stopping customers from using food delivery more is the price, with 37% of people finding the service to be too expensive. Despite that, the customer base for food delivery continues to grow. Trust in gig economy services is at an all time high. Ecommerce retailing has normalized the expectation of delivered goods instead of traveling to store locations. Streaming services and cheap TVs reduce the desire to venture outside of the home for entertainment. As consumers grow more accustomed to all the comforts of home, their search for convenience spills over into dining. Of those that use delivery service providers, 89% say it makes their lives easier.
The rise of food delivery services has been a double-edged sword for restaurants. Some welcome the DSPs as they incremental revenue and a new channel to expose restaurants to more customers. But the commission of approximately 20% per order charged by DSPs cuts into the already thin margins of restaurants. And while the entire operation is digitized, restaurants are often left in the dark when it comes to key analytics about customers. That contributes to the 43% of restaurant professionals that believe DSPs interfere with their customer relationships. As a result, restaurants have begun seeking alternatives to that allow them to modernize their sales channels without sacrificing control of them and digging into sales margins.
Delivery Service Providers
While restaurants and customers drive the supply and demand of the industry, delivery service providers facilitate that interaction. DSPs have quickly grown into a global phenomenon. Rappi in Peru. Swiggy in India. Deliveroo across Europe. And Uber leverages its brand strength in ride hailing with UberEats, its foray into food delivery. They operate similarly, aggregating restaurants on their delivery portal and brokering orders to gig economy couriers. The scale of the operations provides DSPs with a treasure trove of data that they use to advise restaurant partners on menu offerings, hours, and potential locations. As some restaurants begin to sour on the arrangement due to expensive commissions or diminished customer relationships, DSPs have begun looking to their own food brands in the form of "cloud kitchens" that exist as delivery-only options with no dine-in space.
Customers have grown comfortable trusting strangers to deliver their food, but perhaps restaurants should questions the arrangement a bit more. Decades of brand equity are at risk as companies pass their delivery services over to third parties, some of which don't even share customer complaints. Signing up for these services eliminates the differentiating factor of most restaurants. While the food is what draws customers in, service, decor, and ambiance keep them coming back. Thankfully, companies like Olo and Shiftpixy have emerged that allow restaurants to keep the ordering process internal, while still leveraging an on-demand workforce. Both brands help restaurants through white-label ordering platforms that leave more control in the hands of restaurateurs. The most savvy digital brands are seeking these types of arrangements to capitalize on access to ordering data.
The delivery landscape is still new for many in the food business, but some have already begun looking to the future of the industry. This summer, Uber piloted a drone delivery service in San Diego. And while the momentum for human transport via autonomous vehicles has stalled, food delivery pilots continue to role out in earnest. This method has the advantage of climate controlled compartments for each order loaded into the self-driving car. And in a case of full-circle irony, some delivery apps are now sending customers back to the restaurant. A new feature available in multiple apps allows customers to order food ahead of time, then dine-in at the specified time. Some restaurants are even offering discounts as this helps draw customers during off-peak hours that would otherwise lose money.
The rise of DSPs and the need for delivery services in the restaurant industry reveal opportunities and challenges in a changing landscape of customer desires. New ways of doing business also bring about a future of work in which food service workers increasingly rely on tech tools to get the job done. Companies must remain agile as they balance customer expectations with the needs and abilities of partners to continue serving them in the future of food services.