We have seen digital delivery innovate and ultimately transforming the restaurant industry: as the demand for online food delivery and mobile app ordering has been increasing at a pace the on-demand services also have to cope up with the consumer’s expectation and deliver within time.
Some projections for the next 5 years.
This market will continue to grow, at a pace almost four times as fast as the food service industry itself.
Restaurant sales are expected to grow at 5.9% CAGR.
Delivery and takeout will grow at a 21.7% CAGR.
Online orders’ share of restaurant sales will likely double.
Globally, consumers are spending an average of $247.10 on four of the largest delivery companies.
The average transaction runs between $16.00 for German company Delivery Hero and $31.20 for Grubhub, which operates in the US and UK.
Investments in digital delivery are growing at an incredible rate as this still-new segment is showing remarkable returns on those investments.
This has created an incredibly competitive market as service providers carve up the market in hopes of claiming particular segments and geographies for themselves.
Meanwhile, plenty of mergers and acquisitions are leading to greater power.
In December 2016, Just Eat bought Delivery Hero’s UK operation, called hungryhouse, as well as Canada’s SkipTheDishes, and in April 2018, China’s massive Alibaba scooped up Ele.me in hopes of cornering food delivery market in that country.
It’s been reported that DoorDash and Postmates are discussing a merger in hopes of surviving the combined onslaught of Grubhub, Uber Eats, and Amazon, which, with its purchase of Whole Foods, is gaining traction in the grocery-delivery market.
This competition is likely to continue until each segment and market has its own leading business. What will set the winners of this battle will be both consumer-facing service and also how well they serve the restaurants that form the basis of their business. While these organizations started as tech companies, they need to start thinking like foodservice operators to survive.
Currently the traditional model of delivery, wherein a customer contacts a local restaurant directly, still accounts for nearly 90% of all delivery orders, with 66% of those being ordered by phone. However as technology has shown in many other commercial markets, the convenience and desire to purchase or order anything online are growing quickly.
Recently the worldwide market for food delivery has been estimated to be worth over $87 billion, which is just 1% of the total food market, and 4% of food sales by restaurants or fast-food chains. In America itself the expected amount to spend is over $12.5 billion a year by 2019 on delivery food. With the estimated growth the by around 3.5% per year for the next 5 years, many companies and startups are trying to get their piece of the pie.
Companies like Deliveroo, UberEats, and Eat24 have slowly grown to become the middle-man between the customer and restaurants throughout many cities in North America and the UK. The concept is to basically to offer a large number of restaurants based on your address.
Two models of this concept have been developed which deals with numerous restaurants but handle the delivery of food orders completely in two different ways. Let us see both.
One model is operated by aggregators– These aggregators take orders online or via an app, and details of these orders are passed to each individual restaurant who then handles delivery of food themselves.
The second model can be defined as “new delivery”– Which is a concept that requires the company taking the orders online or via an app and to also control the logistics and delivery.
Food deliveries from restaurants are not the only way that has been taken for companies who are trying to exploit the growing market of food delivery services. Startups across the United States have found that offering weekly meal packages have also been a profitable and attractive way to capture the growing healthy eating trend developing across the country. Companies such as PlateJoy and Plated have created healthy and relatively inexpensive meals that are prepared and delivered to homes, to be eaten during the week.
One company called Gobble initially pursued this course as their entry into the food delivery market, but after 5 years of prepared meals decided to change her model to quick, one-pan meals. Owner Ooshma Garg said that the company eventually learned that “getting food in a takeout box was not satisfying [to some working parents] because people felt guilty about not actually cooking.” (Fortune, Fenn) This specific trend of delivering ingredients instead of meals themselves has grown to include some billion dollar companies such as Blue Apron, and HelloFresh.
Being able to offer a meal that people want has not been the only challenge facing many if not all of these companies compete for food delivery supremacy. Everything from marketing to delivery has required a big capital and research to separate from the rest and offer a superior service. With features like the ability to personalize the ordering experience, once a customer signs up for one of these websites or apps, 80% will either stick to the same or rarely venture to another.
For the deliveries themselves, the speed of delivery is considered to be one of the biggest factors when it comes to customer satisfaction. If ordering a meal for dinner or lunch, most people were willing to wait was up to 60 minutes. Also, a large number of meals were found to be delivered to the home (at 82%), rather than to offices, with a spike over the weekends. One can speculate as to why this is the case, but with the fast pace lifestyle of the average American, at home deliveries may eventually into a battleground for all styles of restaurants.
The delivery service providers that can give these restaurants something they can’t develop on their own – becoming vital to sales and operations – are the ones that will survive.
But still, a lot of uncertainty remains as delivery providers further develop the food service market then merge with and/or acquire competitors to increase market share. What remains clear is that there is a lot of revenue and value to earn here, and those who innovate first will have higher chances of successfully achieving it.
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Read more “Seven Reasons Why Restaurants Should Have Online Ordering System”.