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Restaurant delivery speeds into new evolutionary chapter: off-premises business

COVID-19 accelerates delivery adoption, demand

The current pandemic has infused momentum into restaurant delivery. At the beginning of the pandemic, 32 percent of consumers indicated that they had ordered delivery at least once per week. More recently, 73 percent of consumers had ordered restaurant delivery in the immediate past week and 27 percent had ordered third-party delivery in the same timeframe. These insights from a webinar from foodservice consultancy Technomic and the firm’s COVID-19 updates shed light on a tremendous appetite for delivery, as Americans seek out safety and abide by CDC and state recommendations keeping them at home.

Restaurants are differentiated by convenience or the experiential, suggests Technomic’s David Henkes, senior principal, Advisory Group. He points to the success of many casual-dining operators during the pandemic as an indicator of how valuable off-premises business is to restaurants. “Going forward, the importance of having an off-premises strategy is vital.”

“Technology is a pure enabler of online ordering,” Henkes adds. At the same time that consumers’ technology adoption is increasing, so too is their desire for the convenience of delivery. In a Technomic webinar, “Off-Premise Shift,” conducted by Principal Melissa Wilson, she outlined a “dual-demand” environment in which restaurants will be operating, as consumers are expected to continue using multiple formats of off-premises foodservice: drive-thru, delivery, pickup, and curbside pickup, while still looking for occasion-based on-premises dining.

Delivery disruption

Next to drive-thru, which is an area in which limited-service restaurants have been dominating, delivery remains a highly-prized convenience–one that currently is seeing disruption and shift. The $7.3B acquisition of Grubhub by Just Eat Takeaway is poised to upset the apple cart. Just Eat has global reach, while Grubhub needs capital and resources to make a comeback in its race against DoorDash and Uber Eats.

“It speaks to a large degree that you need economies of scale,” says Henkes. The alternative to the Just Eat acquisition was a rumored potential purchase of Grubhub by Uber Eats’ parent, Uber, which would have faced antitrust concerns, he noted. Consumers and operators have shown no desire to be faithful, with consumers ordering from more than one app, and restaurants using two or three different third-party delivery service providers. He believes that loyalty is the inevitable key: Third-party providers can offer incentives for exclusivity and restaurants need to generate more consumer loyalty as well, so consumers become inclined to use fewer services.

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Uber’s $2.65B bid to acquire Postmates is another example of industry consolidation. Although Uber executives have touted the deal’s benefit to consumers and restaurants in the form of lower cost, many experts disagree that consolidation will provide any relief to restaurant operators, particularly when it comes to third-party commission fees. Because Uber is more of a logistics company and operates beyond food, the purchase of Postmates—a delivery-as-a-service venture—appears to make strategic and financial sense.

Delivery still faces a growing chorus of negative publicity. The high third-party commission fees paid by restaurants can be burdensome and have been capped by some cities, including San Francisco, Seattle, New York City and Washington, DC. During the pandemic, independent restaurants have been using employees to make deliveries. Plus, new restaurant product lines, including family meals, meal kits and pantry items have beefed up the selection available to be driven to the waiting arms of customers.

A dual-demand environment

Consumers are ready for the convenience of delivery while concurrently seeking other forms of takeout. In foodie markets like Washington, new delivery services are launching. DC To-Go-Go is a new delivery service launched by restaurants owners that understand the business. The service is designed to be a solution for the Greater Washington, DC Region, which, like many urban markets, has restaurant owners juggling different providers and technologies to build back their businesses.

According to DCist, Chris Powers and co-owners Ivy and Coney’s Adam Fry and Josh Saltzman are rolling out their own online takeout and delivery platform. Their app collects fees of 5 to 15 percent (versus the 30 percent or more collected by third-party delivery services). Online orders that are for pickup can be fulfilled for the lowest-tier rate of 5 percent, while the next tier of 10 percent is charged to restaurants that have their own drivers. A new delivery service using To-Go-Go’s own drivers is forthcoming, and will be charged at the highest rate.

“Maybe there are some learnings that we’ll take and build upon,” suggests Henkes. “It also has to make sense with the restaurant business. Margins look horrible so people (starting delivery services) have to be familiar with restaurants and how restaurants make money.”

Ghost kitchens (or virtual kitchens) and virtual restaurants are further proof that the restaurant industry expects delivery demand to accelerate over the next few years. In the past two months, hospitality management company sbe launched its own set of ghost kitchens to create delivery-only brands, leveraging its real estate and food halls. Its third delivery-only restaurant brand, Plant Nation, launched in May, will grow to 40 locations nationwide if all goes according to plan.

In May, Saladworks partnered with REEF Technologies to expand its delivery capacity without building new stores. The fast-casual chain will use third-party providers to deliver the food. Moreover, a new ghost-kitchen service, Crave Delivery, plans to operate in 50 high-growth markets across the United States by the end of the year. Its business model calls for the delivery of upscale food, partnering with high-end restaurants and top-tier chefs.

According to Technomic, 53 percent of operators used ghost kitchens during the pandemic lockdowns. Prominent forms of ghost kitchens include chain-run ghost kitchens like Kitchen United, and aggregators such as DoorDash Kitchens, notes Henkes. “Ghost kitchens provide efficiencies in deliveries and cost savings. New operators can create new brands… and run virtual restaurants.”

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Clearly, not all customers will be flocking back to restaurants for dine-in service, whether for quick breaks, lunch visits, client meetings or after-work dinner outings. The dual-demand environment puts customers in the driver’s seat, increasingly demanding the convenience of food delivered to where they are at a fair price. As part of “safer-at-home” policies and work arrangements, delivery demand will persist and grow; restaurant operators will need to fine-tune their approaches to make the most of this new normal.

This article was originally published in Restaurant C-Suite Magazine, part of the Eatery Pulse Network magazine portfolio.To view this issue, navigate here.

This article has been modified from the original for more conciseness and to reflect the recent bid by Uber to acquire Postmates.

Photo credit: Saladworks (featured preview image)

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