What You Should Know Before Launching Food Delivery

How will restaurants fare as technology and consumers shape the food delivery market? Here’s a look at the state of delivery and where it could go next.

As Amazon reaches for a slice of the delivery pie, venture capitalists plow funds into food delivery startups, and the top apps compete for market share, only one thing is certain — the pace of change is rapid.

With so much changing so fast, restaurant chains considering delivery as a sales channel are wise to take the pulse of current and recent developments in delivery before making the leap.

Growth in thirid-party delivery App downloads

Lexi Sydow, senior market insights manager at App Annie, told QSR that “in the US, downloads of the top five food delivery apps grew 175% in 2018 from two years prior.” 

In a convenience-driven market, the path of least resistance is the big winner. Increasingly, consumers choose non-traditional methods for brand interaction. Restaurants find that understanding customer behavior and taking a multi-provider delivery approach impacts growth. 

A report by Pentallect, Inc., a food industry strategy firm, reports that the “$13 billion third-party food delivery market is projected to grow at a 13.5% annual rate to $24.5 billion by 2022.” With this, delivery moves from a perk to an expectation. The big question is: how will restaurants fare as technology and consumers shape the food delivery market? 

Key developments in the food delivery market

To address the growing on-demand economy, restaurants and even grocery stores seek ways to gain an edge. We're seeing the lines between grocers, restaurants, and tech companies blur. The increased competition demonstrates how critical the shift to off-premises is for restaurateurs. 

McDonald's. After facing backlash from franchise owners over the impact of steep delivery fees, Restaurant Business reports on the company's announcement that it is "negotiating with its franchisees and its delivery partner Uber Eats to reduce commissions and provide some rent and royalty relief."

Yum Brands. In the recent Q1 Earnings Call, YUM brands CEO Greg Creed said that "both traffic and check saw benefits from the launch" of their delivery programs. While Taco Bell and KFC saw success, Pizza Hut had a 1% decline. Creed noted that third-party aggregators have "a negative impact," but said that "it's hard to measure what the cannibalization effect is on Pizza Hut."

Panera Bread. In efforts to boost sales with a quality product, Panera Bread created a breakfast delivery strategy. Dan Wegiel, Panera's chief growth and strategy officer, told CNBC that "We believe that we have an opportunity to fill that void." 

Chili’s. After a tumultuous few years, Chili's recently announced that they are assessing food delivery agents and expect to roll out services soon. CEO, Wyman Roberts, said, "large-scale third-party delivery players are now willing to adapt their technology into the casual-dining brand's systems and operations."

The downside of food delivery

There's no doubt that the crushing delivery fees, as high as 30% for some delivery agents, hurt restaurant profits. Add in the fact that Tillster data shows that "85% of consumers are unwilling to pay more than $5 for delivery," and restaurant owners feel the pinch. 

It's not only finances that keep restaurant owners up at night. Restaurateurs express concerns over operational effectiveness and brand value as well. After all, no one wants their limited counter space cluttered with multiple tablets. Industry experts expect a period of growing pains as restaurants adapt to off-premises dining.  

Signs of success in delivery sales

Although smaller franchises appear less enthused, restaurant giants continue to demonstrate public support for food delivery. Several, like Starbucks, McDonald’s, and Dominos, put their money where their deliveries are, by investing millions into technology. 

However, for smaller companies, many questions remain. Improvements in negotiations and integrations will provide the edge restaurants need. As the delivery arena becomes saturated and tech companies compete to turn a profit, it's possible for restaurants to get the upper hand. 

With Tillster reporting that "Only 6% of fast-casual and 3% of QSR customers said they wanted to order directly from a third party," opportunity exists for restaurateurs to take back delivery by using SaaS technology solutions to improve their process. 

Trends in the food delivery market

On the Restaurant Business' podcast, “A Deeper Dive,” Russ Bendel, Habit Burger CEO, reports that "third-party delivery is certainly one of the biggest buzzwords in the industry today." Their newly formed off-premises program reflects a strategy that's expected to be replicated by other restaurants including:

  • Upcharging customers for third-party delivery provider use

  • Ensuring total integration between third-party tech and restaurant POS systems.

We’re looking at a dynamic shift in what customers expect from restaurants. Delivery isn’t a fad. According to the National Restaurant Association, “nearly four in 10 operators plan to invest more capital in expanding this portion of their business in 2019.”

Can you get the upper hand?

To compete, restaurant owners will test strategies to get the upper hand with restaurant delivery. We're still a ways off from widespread use of robots, drones, or self-driving cars for delivery. But, there's no doubt that the need for speed and convenience will spawn a wave of innovation in the restaurant industry. 

Photo by Kai Pilger on Unsplash

Photo by Marten Bjork on Unsplash